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How do you calculate the prepayment penalty

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Reference no: EM132028222

A developer borrows $5,500,000 over 30 years but expects to sell the property in 3 years. Current ARM rates are 5% and are expected to rise to 6% in the second year and 6.5% in the third year. If there is a 2.5% prepayment penalty for repaying the loan in the first 5 years, what is the expected borrowing cost? How do you calculate the prepayment penalty?

Reference no: EM132028222

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