Question

You have just purchased a new warehouse. To finance the purchase, you’ve arranged for a 30-year mortgage for 80 percent of the $3,700,000 purchase price. The monthly payment on this loan will be $17,800. What is the APR on this loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Annual percentage rate % What is the EAR on this loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Effective annual rate %

Answer 1

Answer:

The APR on this loan is 6.03%  and the EAR on this loan is 6.20%

Explanation:

loan amount = $3700000*80%

                     = $2960000  

use excel function to find the monthly rate of interest = RATE(nper,pmt,pv,fv)

nper is number of period which is 30*12 = 360 months

pmt is periodic payment which is 17800 in this case

pv is present value or loan amount

fv is future value

monthly rate of interest = RATE(30*12,-17800,2960000,0)

                                       = 0.5023% per monthly rate

the APR on this loan = 0.5023%*12

                                  = 6.03%

the EAR on this loan = (1 + 0.5023%)^12 - 1

                                  = 6.20%

Therefore, The APR on this loan is 6.03%  and the EAR on this loan is 6.20%