Question

You have just purchased a new warehouse. To finance the purchase, you’ve arranged for a 25-year mortgage loan for 75 percent of the $3,000,000 purchase price. The monthly payment on this loan will be $17,100. a.What is the APR on this loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)b.What is the EAR on this loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

The correct answer for option (a) is 7.82% and for option (b) is 8.13%.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Amount borrowed (PV)= 75% × $3,000,000= $2,250,000

Monthly payment = $17,100

Time period Nper = 25 × 12 = 300

FV = 0

(a). So by using financial calculator, we have

Monthly APR = 0.6517%

APR annually = 0.6517% × 12 = 7.8204%

(b). We can calculate the EAR by using following formula:

EAR = (1 + k ÷ n)^n - 1

Where, K = 7.82%

N = 300

By putting the following value, we get

= ( 1 + 0.0782 ÷ 300)^300 -1

= 0.0813 or 8.13%