Jim wants to buy a property and needs to borrow 195,000. He can
get a loan...
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Jim wants to buy a property and needs to borrow 195,000. He canget a loan at 7% for 25 years. Loan origination fees will be$4,700. Assume the lender also imposes a prepayment penalty of 3percent of the outstanding loan balance if the loan is repaidwithin 8 years of closing. If Jim repays the loan after 6 yearswith the penalty, what is the effective interest rate?
8.1%
7.0%
7.9%
7.5%
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The values given in the question are as follows Loan amount 195000 Tenor of loan 25 years Interest rate 7 per annum Loan origination fees 4700 Prepayment penalty if loan repaid within 8 years 3 of outstanding Loan prepayment period 6 years Effective interest rate EIR refers to the actual interest rate that a borrower effectively pays after
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