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You have just purchased a new warehouse
You have just purchased a new warehouse. To finance the purchase, you've arranged for a 38-year mortgage loan for 80 percent of the $3,280,000 purchase price. The monthly payment on this loan will be $16,100.
a.What is the APR on this loan? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b.What is the EAR on this loan? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Expert Solution
a). We can calculate the APR on the loan by using the following formula in excel:-
=rate(nper,pmt,-pv,fv)
Here,
Rate = APR on the loan (monthly)
Nper = 38*12 = 456 periods (monthly)
Pmt = $16,100
PV = $3,280,000*80% = $2,624,000
FV = $0
Substituting the values in formula:
= rate(456,16100,-2624000,0)
= 0.57%
APR = Rate * 12
= 0.57% * 12
= 6.80%
b). Computation of the EAR on the loan:-
EAR = (1+APR/n)^n-1
= (1+6.80%/12)^12-1
= 1.0702 - 1
= 7.02%
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