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Homework answers / question archive / You have just purchased a new warehouse

You have just purchased a new warehouse

Finance

You have just purchased a new warehouse. To finance the purchase, you’ve arranged for a 33-year mortgage loan for 85% of the $3,230,000 purchase price. The monthly payment on this loan will be $15,600.

  1. How much do you borrow from bank to purchase the warehouse?
  2. What is the periodic interest rate of the mortgage loan?
  3. What is the APR quoted by the bank?
  4. What is the EAR of the loan?

Please provide steps and analysis associated with your answers for the questions above.

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1. Borrow from the bank for loan=mortgage loan*purcahse price=85%*3,230,000=2,745,500

2. use RATE function in EXCEL to find the periodic rate

=RATE(nper,pmt,pv,fv,type)

nper=33 years*12=396

pmt=15600

pv=loan=2745500

fv=0

=RATE(396,15600,-2745500,0,0)=0.4843%

Periodic interest arte=0.4843%

3. APR (annual periodic rate)=12*0.4843%=5.812%

4. EAR (Effective annual rate)=[(1+periodic rate)^12]-1=[(1+0.4843%)^12]-1=1.0597-1=5.97%

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