Calculate the payment first

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Reference no: EM132045769

Question: Some home loans involve "points," which are fees charged by the lender. Each point charged means that the borrower must pay 1% of the loan amount as a fee. For example, if 0.5 point is charged on a $100,000 loan, the loan repayment schedule is calculated on the $100,000 loan, but the net amount the borrower receives is only $99,500. What is the effective annual interest rate charged on such a loan, assuming that loan repayment occurs over 360 months, and that the interest rate is 1% per month? Hint: The monthly payment is based on $100,000. Calculate the payment first. The PV that the borrower receives is $99,500. Now think about the nominal rate and then the effective rate.

Reference no: EM132045769

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