Ms Madison Has an Existing Loan with Payments of $782

question 11

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 487,978.99. 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:

Indorsement

An act of signing a document, often found on the back of a check, to transfer rights or to authenticate.

Negotiating

The process of discussing and arriving at a mutual agreement between parties with differing needs or viewpoints.

Blank Indorsement

An indorsement that specifies no particular indorsee and can consist of a mere signature. An order instrument that is indorsed in blank becomes a bearer instrument.

Special Indorsement

An indorsement on an instrument that indicates the specific person to whom the indorser intends to make the instrument payable—that is, it names the indorsee.