A PLAM Has the Following Terms: Loan Amount: $140,000,real Interest

question 29

Multiple Choice

A PLAM has the following terms: loan amount: $140,000,real interest rate: 5.50%, 30-year term,2.50 discount points,annual payments adjustments,monthly payments of $794.90 in year one and $818.75 in year two,and observed inflation EOY2: -4%.If the loan is repaid at the end of year two,what is the effective cost?

• A) 6.28%
• B) 6.43%
• C) 6.98%
• D) 8.34%
• E) cannot be determined

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