Use an annual cash flow analysis

Assignment Help Financial Management

Reference no: EM131347252

When John purchased his home, he borrowed $200,000 from his bank at 6% interest rate per year to be repaid in 360 equal annual end-of-month payments in 30 years. After making 120 payments, Patrick found he could refinance the balance due on his loan at 4.8% interest/year for the remaining 20 years. To refinance the loan, Patrick must pay the original lender the balance due on the loan. To the new lender he also must pay a $2,000 service charge to obtain the loan. The new loan would be made equal to the balance due on the old loan plus the $2,000 service charge by the new lender. Should John refinance the loan, assuming that he will keep the house for at least another 10 years? Use an annual cash flow analysis for solving this problem.

Reference no: EM131347252

Questions Cloud

What is the bank liability liquidity reserve : A bank currently has $50 million in stable deposits against which they want to keep 10% reserves, $100 in vulnerable deposits against which they want to keep 40% reserves, and they have $50 million in "hot money" deposits against which they want to k..

Describe the distribution of chargeable hours : STAT1060- Business Decision Making - Estimate the probability of this minimum number of Chargeable hours being achieved. Show your working. Do NOT use the computer to get a more accurate answer.

Discuss about the case given below : IRBs (institutional review boards) came into being in part as a response to pretty egregious violations of human dignity in the name of research (for example th Nazi medical experiments and the Tuskegee syphilis study). The Keystone project is a ..

Bank expected liquidity deficit or surplus over next week : John Camey, the money manager of the First State Bank, has estimated that the bank has a 20 percent chance of a liquidity deficit of $700 million, a 30 percent chance of a liquidity deficit of $200 million, a 30 percent chance of a liquidity surplus ..

Use an annual cash flow analysis : When John purchased his home, he borrowed $200,000 from his bank at 6% interest rate per year to be repaid in 360 equal annual end-of-month payments in 30 years. The new loan would be made equal to the balance due on the old loan plus the $2,000 serv..

What is the bank total legal reserve requirement : The Shirley State Bank has $90 million in transaction deposits subject to legal reserves. The bank must hold 3 percent legal reserves up to $43.9 million of transaction deposits and 10 percent legal reserves on any amount above this. What is the bank..

What are the implications for macroeconomic policy : Write down the government budget constraint and explain how it can be used to understand the relationship between fiscal and monetary policies.

Residential economic irr calculations-sensitivity case : A development of a track of homes is started during an economic slow period. The pessimistic estimate is that the project will take 18 months. The forecast development costs are: Month’s 1-6 at an expenditure rate of $900,000 per month, the expenditu..

Analyze issues associated with strengthening the competency : Build on your previous discussion answer about change strategies and performance measures, and analyze issues and / or needs associated with strengthening the competency-base of employees in meeting the needs of globalization.Recommend at least tw..

User Account

All Pages