Consider a 20-Year (Monthly-Payment), 8%, $80,000 Mortgage with 2 Points

question 21

Multiple Choice

Consider a 20-year (monthly-payment) , 8%, $80,000 mortgage with 2 points prepaid interest up front. What is the "effective interest rate" or yield over the borrower's expected holding period if the borrower expects to hold the loan for 12 years?

• A) 8.00%
• B) 8.25%
• C) 8.31% N=240, I=8, PV=80000, FV=0; PMT= -669.15; 144=N; FV=-47344; RCL PV = 80000*0.98 = 78400 = PV; I = 8.31%.
• D) 8.56%

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