A borrower is faced with choosing between two loans. Loan A is available for $ at percent interest for years, with points to be included in closing costs. Loan B would be made for the same amount, but for percent interest for years, with points to be included in the closing costs. Both loans will be fully amortizing.
Required:
If the loan is repaid after years, what is the effective interest rate for Loan A and Loan B
If the loan is expected to be repaid after five years, what is the effective interest rate for Loan A and Loan BA borrower is faced with choosing between two loans. Loan is available for $ at percent interest for
years, with points to be included in closing costs. Loan B would be made for the same amount, but for percent
interest for years, with points to be included in the closing costs. Both loans will be fully amortizing.
Required:
a If the loan is repaid after years, what is the effective interest rate for Loan A and Loan
b If the loan is expected to be repaid after five years, what is the effective interest rate for Loan A and Loan B
