Use the Information for the Question(s)below

question 49

Multiple Choice

Use the information for the question(s) below.
You are purchasing a new home and need to borrow $250 000 from a mortgage lender. The mortgage lender quotes you a rate of 6.25% 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 6.0% 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 $5 000 to cover points you are paying the lender.
-Assuming you do not pay the points and borrow from the mortgage lender at 6.25%, then your monthly mortgage payment (with payments made at the end of the month) will be closest to:

• A)$1 540
• B)$1 500
• C)$1 570
• D)$1 530

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Definitions:

Mandated Projects

Projects that are required by legal or regulatory requirements, often for compliance with laws, regulations, or because of safety and welfare concerns.

Flotation Cost

Flotation cost refers to the total expenses incurred by a company in issuing new securities, including underwriting, legal, registration, and other associated fees.

Debt-Equity Ratio

An indicator of a corporation's use of debt financing, determined by dividing its overall debts by the equity of its shareholders.

External Financing

Funds a business obtains from outside the company, including loans, equity investments, and other financial instruments.