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Case Study #3 Answers

1. Calculate payment for loan B

N=30, I=5.75%, PV = -$200,000 PMT = $14,143.25

2. Set PV = to the amount you receive after all costs

$200,000 – 1 point ($2,000 * 1) - 1,500 = $196,500

3. Solve for your balloon payment at year 12

N = 18, PMT = $ 14,143.25, I = 5.75, PV = $156,054.03

4. Solve for your effective rate

PMT = $ 14,143.25, PV is -$196,500, N = 12, FV = $156,054.03, solve for I

I = 5.98% Loan B is still cheaper (barely)

 



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