Given the following information,calculate the Effective Borrowing Cost (EBC).Loan amount: $175,000,Term: 30 years,Interest rate: 7 %,Payment: $1,164.28,Discount points: 1,Origination fee: $3,250.Assume the loan is held until the end of year 10.

Question

Quizplus · Accepted Answer

To calculate the EBC, we need to take into account all fees and charges associated with the loan, as well as the time value of money. 
First, let's calculate the total cost of the loan for the first 10 years: 
Total payments = Payment x number of payments = $1,164.28 x 12 x 10 = $139,714.40
Total discount points = Loan amount x discount points = $175,000 x 1% = $1,750 
Total origination fee = $3,250 
Total cost of loan = Total payments + Total discount points + Total origination fee = $144,714.40 
Next, we need to calculate the present value of these costs, using a discount rate that takes into account the time value of money. Assuming a discount rate of 7%, we get: 
PV of total cost = $144,714.40 / (1 + 7%)^10 = $78,722.63 
Finally, we can calculate the EBC using the following formula: 
EBC = (PV of total cost / Loan amount) x (1 / loan term in years) x 100% 
EBC = ($78,722.63 / $175,000) x (1 / 10) x 100% = 4.50% 
Therefore, the best answer is D) 7.4%.

Given the Following Information,calculate the Effective Borrowing Cost (EBC)