MsMadison Has an Existing Loan with Payments of $782

question 13

Multiple Choice

Ms.Madison has an existing loan with payments of $782.34.The interest rate on the loan is 10.5% and the remaining loan term is 10 years.The current balance of the loan is $57,978.99.The home is now worth $120,000 and Ms.Madison would like to borrow an additional $30,000 through a wraparound loan which would increase the debt to $87,978.99.Terms of the wraparound loan are 12.25% interest with monthly payments for 10 years.What is the incremental cost of borrowing the extra $30,000 through a wraparound loan?

• A)15.47%
• B)11.38%
• C)12.96%
• D)13.41%

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Definitions:

Escrow Settlement

A financial arrangement where a third party temporarily holds and regulates payment of the funds required for two parties involved in a given transaction.

Accountant

A professional responsible for managing and examining financial records and ensuring accuracy and compliance with laws.

Buyer And Seller

Individuals or entities involved in the transaction of goods or services, where the buyer acquires these from the seller in exchange for money.

Terminal Value

An estimate of a company's value at the end of a specific period, often used in discounted cash flow analysis to calculate the present value of all future cash flows.