Question

Tent Chapter 6 i You have just purchased a new warehouse. To finance the purchase, you've arranged for a 30-year mortgage loan for 80 percent of the $3,700,000 purchase price. The monthly payment on this loan will be $17,800. a. What is the APR on this loan? (Do not round Intermediate calculations. Enter your answer as a percent rounded to 2 decimal places... 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.) ces Annual percentage rate b. Effective annual rate

please solve algebraically.

show equations used and show work

Answer 1

a). Loan Amount = Purchase Price * Loan% = $3,700,000 * 0.80 = $2,960,000

To find the rate, we need to put the following values in the financial calculator:

N = 30*12 = 360;

PV = 2,960,000;

PMT = -17,800;

FV = 0;

Press CPT, then I/Y, which gives us 0.502

So, Periodic Rate = 0.502%

APR = Periodic Rate * No. of compounding periods in a year = 0.502% * 12 = 6.03%

b). EAR = [1 + Periodic Rate]^{No. of compounding periods in a year} - 1

= [1 + 0.00502]¹² - 1 = 1.0620 - 1 = 0.0620, or 6.20%