Suppose that you are given the option to borrow a fixed rate US mortgage of $80,000...

Suppose that you are given the option to borrow a fixed rate US mortgage of $80,000 at 12% for 25 years with monthly payments. Alternatively, you may borrow another fixed rate US mortgage of $90,000 for 25 years with monthly payments at a contract interest rate to be determined. The lender would like to have an effective annual yield of 25% on the incremental cost of borrowing (i.e., on the $10,0000), reflecting the borrower’s increased default risk. Formulate how you would compute the contract interest rate on the entire $90,000 loan.

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jeff jeffy answered 1 year ago

suppose that you are given the option to borrow a fixed rate US mortgage of $80,000...

suppose that you are given the option to borrow a fixed rate US mortgage of $80,000 at 12% for 25 years with monthly payments. Alternatively, you may borrow another fixed rate US mortgage of $90,000 for 25 years with monthly payments at a contract interest rate to be determined. The lender would like to have an effective annual yield of 25% on the incremental cost of borrowing (i.e., on the $10,000), reflecting the borrower’s increased default risk. Formulate how you...

(use equations, not computer) Suppose that you are given the option to borrow a fixed rate...

(use equations, not computer) Suppose that you are given the option to borrow a fixed rate US mortgage of $80,000 at 12% for 25 years with monthly payments. Alternatively, you may borrow another fixed rate US mortgage of $90,000 for 25 years with monthly payments at a contract interest rate to be determined. The lender would like to have an effective annual yield of 25% on the incremental cost of borrowing (i.e., on the $10,0000), reflecting the borrower’s increased default...

You are buying a house and will borrow $225,000 on a 30-year fixed rate mortgage with...

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class: Derivative Securities . Company X wishes to borrow US dollars at a fixed rate of...

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Suppose that you are considering a conventional, fixed-rate 15-year mortgage loan for $300,000. The lender quotes...

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