Solved Question: Discussion with lenders indicates that a loan can be obtained for 75%

Get premium Solution to all your Homework Assignments exclusively on writerkingdom. We have CFA/MBA writers to provide customized model answers to your every academic problem

Compare

Description

Question:

Discussion with lenders indicates that a loan can be obtained for 75% of a property’s market value. Loan terms will probably be 8% interest, 20-year amortization (monthly payments), with the rate renegotiable after 7 years. The property is estimated to be worth $200,000.

a) How much can be borrowed?

b) What will be the annual debt service?

c) What is the expected annual loan constant?

Answer:

a)

Borrowing amount:

= $200,000*75%

= $150,000

b)

Equal monthly payment [P×r×(1+r)^n]÷[(1+r)^n-1]
Here,
1 Interest rate per annum 8.00%
2 Number of years                                                                                                                20
3 Number of compounding per annum                                                                                                                12
4 = 1÷3 Interest rate per period ( r) 0.67%
5 = 2×3 Number of periods (n) 240
Loan amount (P) $                                                                                                 150,000
Equal monthly payment $                                                                 1,254.66
150000*0.67%*(1+0.67%)^240)/((1+0.67%)^240-1)

Annual debt service = Equal monthly payment*12

= $1,254.66

= $15,055.92

c)

Annual loan constant:

= [Interest rate/12]/(1-(1/(1+[Interest rate/12])^n))*12

= [8%/12]/(1-(1/(1+[8%/12])^240))*12

= 10.04%

Reviews

There are no reviews yet.

Be the first to review “Solved Question: Discussion with lenders indicates that a loan can be obtained for 75%”

Your email address will not be published. Required fields are marked *