A loan is granted in the amount of $500,000 with a stated interest rate of 10%. The lender incurs direct loan origination costs of $10,000 and charges the borrower a 3-point nonrefundable fee. The effective interest rate to the lender will be

 A loan is granted in the amount of $500,000 with a stated interest rate of 10%. The lender incurs direct loan origination costs of $10,000 and charges the borrower a 3-point nonrefundable fee. The effective interest rate to the lender will be
10%
Less than 10%
Greater than 10% Correct
Greater than 9% but less than 10%.
 You Answered Correctly!
This answer is correct. The lender has a carrying amount of $495,000. This reflects the $500,000 less the $15,000 nonrefundable fee plus the $10,000 loan origination costs. A carrying amount less than the face amount will yield an effective interest rate greater than the stated interest rate of 10%.