Question

You have just purchased a new warehouse. To finance the purchase, you have arranged for a 30-year mortgage loan for 80% of the $3,400,000 purchase price. The monthly payment on this loan will be $17,500. What is the monthly compounded APR on this loan? What is the EAR?

I need a proper solution with formula and not financial calculator.

Answer 1

Ans :

The relationship between a quoted rate, such as an annual percentage rate (APR), and an effective annual rate (EAR) is given by:

Formula is...

EAR = [ 1+(quoted rate/m)]^m

where m is the number of time during the year the money is compounded.

Loan amount = 3400000 x 80% = 2720000

No. of years = 30

No of payment = 30 x 12 = 360

Repayment = 360 x 17500 = 6300000

Yearly payment = 17500 x 12 = 210000

Int rate = 210000/2720000 = 7.72% = APR

EAR [1+7.72/30]³⁰-1 = 7.72