You have just purchased a new warehouse. To finance the purchase, you’ve arrange

Question

You have just purchased a new warehouse. To finance the purchase, you’ve arranged for a 33-year mortgage loan for 75 percent of the $3,330,000 purchase price. The monthly payment on this loan will be $16,600. Requirement 1: What is the APR on this loan? (Round your answer as directed, but do not use rounded numbers in intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) APR % Requirement 2: What is the EAR on this loan? (Round your answer as directed, but do not use rounded numbers in intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) EAR %

Explanation / Answer

1. APR Calculation

Given that Total Loan amount is $2,497,500 ( 75% of 3,330,000), Time = 33 years monthly payment = 16,600

now APR = Rate (no.of payments, - monthly payment, loan amount) * 12

= 7.24%

2. EAR = (1 + APR/m)^m - 1, where m = no. of counpouding, in our case its monthly compounding therefore m=12

= ( 1 + 7.24%/12)^12 -1

= 7.48%

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