A property is expected to have NOI of $100,000 the first year. The NOI is expected to increase by 5 percent per year the

[answerhappygod]

A property is expected to have NOI of
$100,000 the first year. The NOI is expected to
increase by 5 percent per year thereafter. The appraised value of
the property is currently $1.25 million and the lender is willing
to make a $1,125,000 participation loan with a contract interest
rate of 5.5 percent. The loan will be amortized with monthly
payments over a 20-year term. In addition to the regular mortgage
payments, the lender will receive 50 percent of
the NOI in excess of $100,000 each year until
the loan is repaid. The lender also will receive 50 percent of any
increase in the value of the property. The loan includes a
substantial prepayment penalty for repayment before year 5, and the
balance of the loan is due in year 10. (If the property has not
been sold, the participation will be based on the appraised value
of the property.) Assume that the appraiser would estimate the
value in year 10 by dividing the NOI for year 11
by an 8 percent capitalization rate.
Required:
Calculate the effective cost (to the borrower) of the
participation loan assuming the loan is held for 10 years. (Note
that this is also the expected return to the
lender.) (Do not round intermediate calculations.
Round your final answer to 2 decimal places.)