I recently picked up ‘property investment’ as an elective. The unit requires basic knowledge on finance and financial formulas. However, I have never done a finance unit before and am having trouble figuring out how to do the tute questions. I have the answers but would rather have an understanding of how to answer the questions and which formula to use.

A bank quotes a mortgage rate of 7% nominal compounded monthly and you are interested in borrowing $150 000 over 10 years with monthly payments, in addition to interest it charges an up front loan arrangement fee of 2% of the loan plus it charges an account service fee of $25 per month. What is the annual effective cost of the loan?

Thanks, much appreciated.

Asked by:cis4c0okie