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Calculate the cost of funds advanced to the borrower

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Reference no: EM132935702

Jen recently arranged a mortgage for her new home with a face value of $276,250 at an interest rate of j2
= 5.35%. The mortgage broker who arranged the loan charged an $7,500 brokerage fee. The mortgage has a 25-year amortization, a 4-year term, and monthly payments of $1,662.16. The outstanding balance owing at the end of the term is $252,569.79.

Problem 1. Calculate the cost of funds advanced (COFA) to the borrower, expressed as an annual rate with semi- annual compounding (j2).

(1) 5.350000%

(2) 4.073187%

(3) 6.166415%

(4) 5.842513%

Problem 2. Which of the following statements regarding the annual percentage rate (APR) for this loan is TRUE?

(1) The APR will be less than the contract interest rate.

(2) The APR would be higher if the loan was fully amortized.

(3) The APR considers the impact of the brokerage fee and all other costs of borrowing in one formula.

(4) The APR is a more mathematically precise calculation than the COFA.

Reference no: EM132935702

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