Required to pay two points to secure the financing

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Reference no: EM133674208

Question

1. You are borrowing $5,000,000 at 5.875%, monthly pay that fully amortizes over 30 years. You are also required to pay two points to secure the financing. Assume that you will also sell the building at the end of year 5, what is the annual effective interest rate that the firm earned over the 5 years. (Hint: Solve for rate given all of the outflows and inflows the lender will receive over the 5 years)

2. You are borrowing $1,000,000 with a 4.0% 3/1 ARM. The rate is reset with a spread of 150 basis points over one-year Treasuries. Assume Treasuries are 3.75% at the beginning of the first rate reset. What is the loan balance at the end of year 4?

3. You are purchasing a property that has an initial NOI of $500,000 that will grow at 3% per year. It is being purchased with a 6% cap rate. You can finance your acquisition with financing equal to 75% of the purchase price at 4.625%, payable monthly, fully amortizing over 30 years. You plan to sell the property at 6.5% cap rate at the end of year 5 based on year's 6 NOI. What is the IRR to your equity?

Reference no: EM133674208

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