Patrick found he could refinance the balance due on his loan

Assignment Help Financial Management

Reference no: EM131346397

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: EM131346397

Questions Cloud

Invested in risk-free security and stock : You own a $30,000 portfolio that is invested in a risk-free security and Stock A. The beta of Stock A is 1.80 and the portfolio beta is 1.20. What is the amount of the investment in Stock A?

Zero coupon bond issue outstanding : Sunburn Sunscreen has a zero coupon bond issue outstanding with $20,000 face value that matures in one year. The current market value of the firm’s assets is $20,900. The standard deviation of the return on the firm’s assets is 26% per year, and the ..

What is the market value of the firms equity and debt : Sunburn Sunscreen has a zero coupon bond issue outstanding with $20,000 face value that matures in one year. The current market value of the firm’s assets is $20,900. The standard deviation of the return on the firm’s assets is 26% per year, and the ..

Expected equivalent uniform annual worth of machine : A machine's initial cost is $20,000 and it is expected to be used for the foreseeable future. Beginning a year from today, the machine will bring $2, 600 revenue annually. Maintenance costs are $200 and will be incurred every year beginning 5 years o..

Patrick found he could refinance the balance due on his loan : 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 ..

Statements is true if markets are weak form efficient : Which of the following statements is true if markets are "weak" form efficient?

What should share price be in one year : A share of stock sells for $52 today. The beta of the stock is 1.0, and the expected return on the market is 14 percent. The stock is expected to pay a dividend of $1.10 in one year. If the risk-free rate is 5.1 percent, what should the share price b..

Simply pay vendors late to slow down cash disbursements : Can we negotiate with vendors to get better terms that will slow cash disbursements? Is there anything to negotiate or does your company have any leverage? Is it a good business practice to simply pay vendors late to slow down cash disbursements?

Find the growth rate of the stock : Astwood Company’s current stock price is $36, its last dividend was $2.40, and its required rate of return is 12 percent. If dividends are expected to grow at a constant rate, g, in the future, and if rs is expected to remain at 12 percent, Find the ..

User Account

All Pages