You Are Purchasing a New Home and Need to Borrow

question 22

Multiple Choice

You are purchasing a new home and need to borrow $260,000 from a mortgage lender. The mortgage lender quotes you a rate of 6.80% APR for a 30-year fixed rate mortgage. The mortgage lender also tells you that if you are willing to pay two points, they can offer you a lower rate of 6.50% APR for a 30-year fixed rate mortgage. One point is equal to 1% of the loan value. So if you take the lower rate and pay the points, you will need to borrow an additional $5200 to cover points you are paying the lender. Assuming you pay the points and borrow from the mortgage lender at 6.50%, then your monthly mortgage payment (with payments made at the end of the month) will be closest to ________.

• A) $1844
• B) $1676
• C) $2011
• D) $2347

---

Definitions:

Cash Dividends

Payments made by a corporation to its shareholders from its profits in the form of cash.

Outstanding Shares

The total number of shares of stock that are currently held by all shareholders, including share blocks held by institutional investors and restricted shares.

Beginning of the Year Balance

The amount of money or value of an account at the start of a fiscal year before any transactions have been accounted for.

Parent-Subsidiary Relationship

A corporate structure where one company (the parent) controls another company (the subsidiary) by owning a majority of its stock.