Final answer:
Paying three points on a note with a 6% interest rate will increase the yield to the lender.
Step-by-step explanation:
When interest rates change for an investment, it affects the yield to the lender. In this case, the student is asking about the effect of paying three points on a note with a 6% interest rate.
Points are fees paid to a lender at closing in exchange for a lower interest rate on the loan. By paying this upfront fee, the lender's yield will increase because they will receive additional income from the points paid.
For example, if the principal amount of the note is $100,000, paying three points means an upfront fee of $3,000. This fee is not included in the interest rate calculations; it's an additional cost.
Therefore, the lender will receive the interest payments based on the 6% rate plus the extra $3,000 from the points paid, resulting in an increased yield. It's important to note that the method of calculating yield may vary, so it's always important to consider the specific terms of the loan or investment.