Your friend Tony is 55 years old. He is looking to borrow $200,000 to buy a home in Queens. In 10 years he will retire and move to Florida. Tony knows you took RES-3200 and needs your help to decide which mortgage to take. He is considering two 30 year fixed rate mortgages with monthly payments:
(loan A) 8% interest and zero points
(loan B) 5% interest and 2 mortgage points
What is the effective interest rate of each loan?
How else to solve?
Your recommendation? (Calculate, FV, PV, PMT. EAR)