Question

You have just purchased a new warehouse. To finance the purchase, you’ve arranged for a 30-year mortgage for 80 percent of the $3,200,000 purchase price. The monthly payment on this loan will be $17,300.
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

Answer:

a) 7.2%

b) 7.46%

Explanation:

the loan's principal = $3,200,000 x 80% = $2,560,000

first monthly payment = $17,300 x 360 payments = $6,228,000

total interests charged = $6,228,000 - $2,560,000 = $3,668,000

using a financial calculator:

n = 360

payment = -17,300

present value = 2,560,000

monthly APR = 0.6% x 12 months = 7.2%

effective annual rate = (1 + i/n)ⁿ - 1 = (1 + 0.072/30)³⁰ - 1 = 7.46%