Quantitative Problems Chapter 12

Loan Amount Interest Rate Type of Mortgage Discount Point Option 1 $100,000 6.75% 30-yr fixed none Option 2 $150,000 6.25% 30-yr fixed 1 Option 3 $125,000 6.0% 30-yr fixed 2 What is the effective annual rate for each option? Solution: Option 1: (1 0.0675/12)12 1 0.069628. Option 2: First, compute the effective monthly rate based on the points as follows: N 360, I/Y 6.25/12, PV 150,000, compute ... ................
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