2. An investor has $60,000 to invest in a $280,000 property. He can obtain either a $220,000 loanat 9.5 percent for 20 years or a $180,000 loan at 9 percent for 20 years and a second mortgagefor $40,000 at 13 percent for 20 years. All loans require monthly payments and are fullyamortizing.a. Which alternative should the borrower choose, assuming he will own the property for the fullloan term?b. Would your answer change if the borrower plans to own the property only five years?Question 3

Option 1:Option2:First mortgageSecond mortgageLoan value22000018000040000Loan interest…

Answered: An investor has $60,000 to invest in a…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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An investor has $60,000 to invest in a $280,000 property. He can obtain either a $220,000 loan at 9.5 percent for 20 years or a $180,000 loan at 9 percent for 20 years and a second mortgage for $40,000 at 13 percent for 20 years. All loans require monthly payments and are fully amortizing.a. Which alternative should the borrower choose, assuming he will own the property for the full loan term?b. Would your answer change if the borrower plans to own the property for only five years?c. Would your answers to (a) and (b) change if the second mortgage had a 10-year term?
A borrower can obtain an 85 percent loan with an 6 percent interest rate and monthly payments. The loan is to be fully amortized over 25 years. Alternatively, he could obtain a 95 percent loan at an 6.5 percent rate with the same loan term. The borrower plans to own the property for the entire loan term. Required: a. What is the incremental cost of borrowing the additional funds? (Hint: The dollar amount of the loan does not affect the answer.) b. What is the incremental cost of borrowing the additional funds if 2 points were charged on the 95 percent loan? c. What is the incremental cost of borrowing the additional funds if the borrower planned to own the property for only five years?
A borrower can obtain an 80 percent loan with an 9 percent interest rate and monthly payments. The loan is to be fully amortized over 25 years. Alternatively, he could obtain a 95 percent loan at an 9.5 percent rate with the same loan term. The borrower plans to own the property for the entire loan term. Required: a. What is the incremental cost of borrowing the additional funds? (Hint: The dollar amount of the loan does not affect the answer.) b. What is the incremental cost of borrowing the additional funds if 2 points were charged on the 95 percent loan? c. What is the incremental cost of borrowing the additional funds if the borrower planned to own the property for only five years? Complete this question by entering your answers in the tabs below. Required A Required B Required C What is the incremental cost of borrowing the additional funds if the borrower planned to own the years? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Incremental…
A borrower can obtain an 80 percent loan with an 8 percent interest rate and monthly payments. The loan is to be fully amortized over 25 years. Alternatively, he could obtain a 90 percent loan at an 8.5 percent rate with the same loan term. The borrower plans to own the property for the entire loan term. a. What is the incremental cost of borrowing the additional funds? (Hint: The dollar amount of the loan does not affect the answer.) b. What is the incremental cost of borrowing the additional funds if 2 points were charged on the 90 percent loan? c. What is the incremental cost of borrowing the additional funds if the borrower planned to own the property for only five years?
A borrower can obtain an 80 percent loan with an 8 percent interest rate and monthly payments. The loan is to be fully amortized over 25 years. Alternatively, he could obtain a 90 percent loan at an 8.5 percent rate with the same loan term. The borrower plans to own the property for the entire loan term. a. What is the incremental cost of borrowing the additional funds? (Hint: The dollar amount of the loan does not affect the answer.) b. How would your answer change if two points were charged on the 90 percent loan? c. Would your answer to part (b) change if the borrower planned to own the property for only five years?
John wants to buy a property for $121,250 and wants an 80 percent loan for $97,000. A lender indicates that a fully amortizing loan can be obtained for 30 years (360 months) at 9 percent interest; however, a loan fee of $4,800 will also be necessary for John to obtain the loan. Required: a. How much will the lender actually disburse? b. What is the APR for the borrower, assuming that the mortgage is paid off after 30 years (full term)? c. If John pays off the loan after five years, what is the effective interest rate? d. Assume the lender also imposes a prepayment penalty of 2 percent of the outstanding loan balance if the loan is repaid within eight years of closing. If John repays the loan after five years with the prepayment penalty, what is the effective interest rate
A builder is offering $139,371 loans for his properties at 9 percent for 25 years. Monthly payments are based on current market rates of 9.5 percent and are to be fully amortized over 25 years. The property would normally sell for $150,000 without any special financing. Required: a. At what price should the builder sell the properties to earn, in effect, the market rate of interest on the loan? Assume that the buyer would have Give typing answer with explanation and conclusion
Assume a borrower is purchasing a property for USD 100,000and faces two possible loan alternatives. A lender is willingto make an 80% first mortgage loan, or USD 80,000, for 25years at 12% interest. The same lender is willing to lend 90%, or USD 90,000, for 25 years at 13%. Both loans will have afixed interest rates and CPM. How should the borrowercompare these two alternatives?.
A builder is offering $107, 960 loans for his properties at 9 percent for 25 years. Monthly payments are based on current market rates of 9.5 percent and are to be fully amortized over 25 years. The property would normally sell for $120,000 without any special financing. Required: a. At what price should the builder sell the properties to earn, in effect, the market rate of interest on the loan? Assume that the buyer would have the loan for the entire term of 25 years. b. At what price should the builder sell the properties to earn, in effect, the market rate of interest on the loan if the property is resold after 10 years and the loan repaid?
John wants to buy a property for USD 105,000 and once on 80% loan for USD 84000. A lender indicates that a fully amortizing loan can be obtained for 30 years at 8% interest payable monthly. However a loan origination fee of USD 3500 will be necessary for John to obtain the loan.Required:a) how much will the lender actually distributeb) what is the effective interest rate for the borrower assuming that the mortgage is paid off after 30 yearsC) if John pays the loan after five years what is the effective interest rate and why it's different from the effective interest in (b)above
A builder is offering $137,381 loans for his properties at 9 percent for 25 years. Monthly payments are based on current market rates of 9.5 percent and are to be fully amortized over 25 years. The property would normally sell for $150,000 without any special financing. Required: a. At what price should the builder sell the properties to earn, in effect, the market rate of interest on the loan? Assume that the buyer would have the loan for the entire term of 25 years. Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.) b. At what price should the builder sell the properties to earn, in effect, the market rate of interest on the loan if the property is resold after 10 years and the loan repaid? Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)
Suppose you are interested in taking an FHA mortgage loan for $250,000 in order to purchase your principal residence. In order to do so, you must pay an additional up-front mortgage insurance premium (UFMIP) of 1.0% of the mortgage balance. If the interest rate on the fully-amortizing mortgage loan is 5% and the term is 30 years and the UFMIP is financed (i.e., it is included in the loan amount), what is the dollar portion of your monthly mortgage payment that is designated to cover the UFMIP? A. $2,500.00B. $1,119.41C. $159.67D. $13.42

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