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You have two alternatives for a 30-year loan to purchase a $200,000 residential property. The two loan alternatives are set forth on the table below:
Alternative #1 Alternative #2 LTV 90% alternate #2 LTV 75% I 9% alnternate #2 I 8% Down Payment $20,000 Alternate #2 Down Payment $50,000 Loan Amount $180,000 Alternate #2 Loan Amount $150,000 Payment $1,448.32 Alternate #2 Payment $1,100.65 a. What is the incremental borrowing cost of the additional amount borrowed under alternative #1? b. Assuming the borrower expects to relocate after 10 years, what is the incremental borrowing cost of the additional amount borrowed under alternative #1? c. What does the incremental borrowing cost measure?
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