Home loans typically involve \"points,\" which are fees charged by the lender. E
ID: 2742671 • Letter: H
Question
Home loans typically involve "points," which are fees charged by the lender. Each point charged means that the borrower must pay 1% of the loan amount as a fee. For example, if the loan is for $110,000 and 3 points are charged, the loan repayment schedule is calculated on a $110,000 loan but the net amount the borrower receives is only $106,700. Assume the interest rate is 1.25% per month. What is the effective annual interest rate charged on such a loan, assuming loan repayment occurs over 348 months? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Use a financial calculator or Excel.)
Effective annual interest rate __________%
Explanation / Answer
use pmt formuale in excel to find per month payment
=pmt(rate,nper,pv,fv,type)
=PMT(1.25%,348,106700,,0)
=$1351.67
use rate formaule in excel to find this
=rate(nper,pmt,pv,fv,type,guess)
nper=348
pmt=1351.67
pv=-106700
fv=
type=0
guess=1
=RATE(348,-G5,106700,0,0,1)
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