Question

A house is for sale for $250,000. You have a choice of two 20-year mortgage loans with monthly payments: (1) if you make a down payment of $25,000, you can obtain a loan with a 6% rate of interest or (2) if you make a down payment of $50,000, you can obtain a loan with a 5% rate of interest. What is the effective annual rate of interest on the additional $25,000 borrowed on the first loan?
(a) 1.00%
(b) 6.00%
(c) 12.95%
(d) 18.67%
(e) 20.10%

Answer

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