You Need a 30-Year FRM and Have Two Choices

question 19

Multiple Choice

You need a 30-year FRM and have two choices.Option one is 6.50% contract rate with 2.50 discount points and an APR of 6.75%.Option two is 6.75% contract rate with no discount points.Neither loan has any other financing fees.If you plan to hold the loan for five years,which is the better option to minimize your effective borrowing costs?

• A) 6.50% with 2.50 points
• B) 6.75% with no points
• C) doesn't matter,the effective cost is the same
• D) can't determine without knowing the loan amount

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Definitions:

Monopoly

A market structure characterized by a single seller or producer dominating the entire market, often leading to limited consumer choice and higher prices.

Gross Domestic Product

The total value of all goods and services produced within a country's borders in a specific time period, used as a broad measure of economic activity.

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The pool of individuals in a country or company eligible for and engaged in employment, including both employees and those seeking employment.