If your bank charged you 2.5 points to obtain this loan, what yield (APR) will the bank earn?
The Importance of Understanding Yield (APR) in Loan Transactions
The term "yield" refers to the return on an investment and APR stands for "Annual Percentage Rate." It is the interest rate charged on a loan or earned on an investment in a year.
But you can follow these steps to calculate the yield (APR) for a bank:
To calculate the yield (APR) for the bank, we need to consider the points charged by the bank and the loan term.
Given:
Points charged by the bank = 2.5%
Loan term = 30 years
To calculate the bank's yield (APR), we can simply add the points charged by the bank to the nominal interest rate. The nominal interest rate is the annual interest rate without taking into consideration any fees or charges.
Bank's yield (APR) = Nominal interest rate + Points charged by the bank
Bank's yield (APR) = Nominal interest rate + 2.5%
The Federal Truth in Lending APR is a disclosure required by law that represents the true cost of borrowing, taking into consideration all fees, points, and charges associated with the loan.
To calculate the Federal Truth in Lending APR, we need to consider the nominal interest rate, points charged by the bank, and other fees associated with the loan.
Federal Truth in Lending APR = Nominal interest rate + Points charged by the bank + Other fees associated with the loan
To calculate the cost of the loan to you (expressed as an APR), assuming you keep the loan for 30 years, we need to consider the nominal interest rate, points charged by the bank, and other fees associated with the loan.
Cost of the loan to you (APR) = Nominal interest rate + Points charged by the bank + Other fees associated with the loan
To calculate the lender yield and effective borrowing cost if you keep the loan for only 3 years, we can follow the same approach, but adjust the loan term to 3 years.
Please provide the nominal interest rate and any other relevant fees associated with the loan so that we can provide you with accurate calculations.
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If you must pay $850 in other fees to close this loan, what is the cost to you of this loan (expressed as an APR), assuming you keep the loan for 30 years? If you keep the loan only 3 years, what will the lender yield be (APR)? If you keep the loan 3 years, what will your Effective Borrowing Cost be (APR)? Answer: To calculate the cost of the loan to you, including the $850 in other fees, expressed as an APR, you would add the nominal interest rate, points charged by the bank, and the other fees associated with the loan. With the given details, you can accurately calculate the total cost of the loan to you. For the lender yield if you keep the loan for only 3 years, you would adjust the loan term to 3 years and calculate the appropriate yield (APR) based on the nominal interest rate and points charged by the bank. Your Effective Borrowing Cost, expressed as an APR, when keeping the loan for 3 years, can be determined by considering the interest rate, points, and fees associated with the loan over the 3-year period.