What is the effective annual cost to the borrower of a

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(a) What is the effective annual cost to the borrower of a $500,000, 4%, 20-year, fullyamortized home loan, repaid annually, if 2.5% in points (loan closing costs) is charged, and the loan is pre-paid at the end of 5 years with a 1.25% prepayment penalty? (what are the 3 cash flows at the end of 5?)

(b) What is the effective annual cost if the loan goes to maturity?

Reference no: EM13618320

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