A house price of $100,000 can be financed with two loans below with monthly payments. The total origination cost associated with these two loans is $3000.
|Loan Amount||Term (years)||Interest Rate|
Alternatively, the borrower can borrow one loan in the amount of $90,000 with monthly payments and origination cost of $2,000. What should the interest rate be on the loan of $90,000so that the borrower will be indifferent between these two choices?
House price $100000
Origination cost $3000
Loan amount $80000
Term 30 years
Interest rate 5 % Loan 2
Loan amount $10000
Term 30 years
Interest rate 7 % Alternative
Borrow 1 loan...
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