Calculate effective costs,
Loan ;$100000
Internet ; 7%
Term; 180 months
Upfront costs 7%
A) calculate monthly payments
B) how much still owe after repayment
C) what is effective interest given points on loan
A, M = P r(1+r)n / (1+r)n - 1
M = ?
P = $100000
r = monthly interest rate 7/12= .0058
n= 180 months
M= 100000 .0058(1+.0058)180 / (1+.0058)180 - 1
= 100000 * .0058(2.83) / (2.83) - 1
= 100000 * .016 / 1.83
M = 100000 * .008743
M = $ 874.31
B, $ 874.31 should be paid for 180 months for $100000 borrowed loan
= 874.31 * 180 = $157375.8
Interest amount = $157375.8 - $100000 = $57375.8
Upfront cost = 7% Upfront fee is collected by the bank at initial stage
= 100000* 7% = $7000
So total money owe = $157375.8 + $ 7000 = $ 164375.8
C. Effective interest
EAR = (1+r/12)n - 1
= (1+.07/12)12 - 1
= (1+ .0058)12 - 1
=1.07 - 1
=.0719
= 7.19%
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