What is the net present value of refinancing

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Reference no: EM132050654

1. Suppose that 4 years ago you borrowed $250,000 using a 30-year mortgage with an annual interest rate of 16% with monthly payments and monthly compounding. The interest rate for 30-year mortgages has fallen to 15% per year with monthly payments and monthly compounding. How many payments would you need to make on the new loan in order for the net present value of refinancing to be positive if you assume that refinancing costs will be 4% of the new loan amount?

A) 64 B) 65 C) 66 D) 67 E) 68

2. Suppose that 3 years ago you borrowed $250,000 using a 30-year mortgage with an annual interest rate of 8% with monthly payments and compounding. The rate on 30-year mortgages has fallen to 6.5% per year with monthly payments and compounding. What is the net present value of refinancing if you assume that refinancing costs will be 3% of the new loan amount and you will pay off the new loan at the end of the 5th year?

A) ($3,619) B) ($2,496) C) $7,283 D) $7,809

Reference no: EM132050654

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