Question

%_________    16. You purchase a house with the following terms: $245,000 selling price, your lender has an 80% LVR for the fully amortized CPM you desire, 3.99% interest compounded monthly, 2.5 points, 25 year amortization period. What is the lender’s return (earned interest rate)?

Answer 1

With the given information, lender's return ( earned interest rate) is 4.06%

Here first we find out the Loan amount and for this we used LVR formula

Loan amount=

Asset value*LVR

Then with the other particulars like years and interest rate we calculated the future price of the loan.

We calculated the future amount as this is the amount which the lender will get from the borrower in 25 years.

for calculation of future value we used future value excel formula.

which is future value= fv(rate,year,,-pv)

after this is used compounding formula to fined out the return rate of borrower.

formula=(fv of loan/presesnt value of loan)^(1/number of years)-1

Please refer to the attached file for step explanation and calculation along with formula and cell referred.