Suppose that you have two loan choices with monthly payments Choice Loan Amount Term (years) Interest...

Suppose that you have two loan choices with monthly payments

Choice	Loan Amount	Term (years)	Interest Rate
1	$ 250,000	30	5%
2	$ 220,000	30	4.50%

A) What is the annual incremental borrowing cost for loan 1 over loan 2 if you hold the loan for the entire term, assuming there is no origination cost associated with the loans?

3.34%

5.34%

8.34%

10.34%

B) If the origination costs for loans 1 and 2 are $3,500 and $2,500 respectively, and you hold the loan for 6 years (72 months), what is annual incremental borrowing cost of loan 1 over loan 2?

5.29%

10.29%

8.55%

9.29%

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Expert Solution

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jeff jeffy answered 4 months ago

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