1) What is the debt service coverage ratio for a $1.8 million property generating a 6.5% before tax annual return on equity with a $1.5 million ten year interest-only first mortgage at a 5.5% annual interest rate?
a) 1.42
b) 1.24
c) 0.83
d) 0.71
2) A borrower can obtain an 80% fully amortizing loan at a 6.0% annual interest rate with equal monthly payments of principal and interest over 30 years, or obtain a 90% fully amortizing loan for 30 years at a 6.5% annual interest rate with equal monthly payments. What is the incremental annual borrowing cost for the additional loan amount if each loan is outstanding for the full term?
a) 12.5%
b) 10.2%
c) 8.3%
d) 6.5%