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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 33-year mortgage loan for 85% of the $3,230,000 purchase price. The monthly payment on this loan will be $15,600.
- How much do you borrow from bank to purchase the warehouse?
- What is the periodic interest rate of the mortgage loan?
- What is the APR quoted by the bank?
- What is the EAR of the loan?
Please provide steps and analysis associated with your answers for the questions above.
Expert Solution
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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