4. sally just purchased a home and took out a 30-year fixed, $205,000 mortgage with an interest rate of 4.5% and monthly payments.

a. How much is sallys monthlymortgage payment?

b. What percentageof all payments made during the first 3 years will be applied to principal?

c. Assuming that Sally makes her mortgage payments as calculated in part a and decides to refinance her mortgage for a better interest rate after 5 years; what is the balance on her mortgage after 5 years?

d. Sally is able to obtain a new interest rate of 3.85% as she refinances her mortgage; using the balance you just found for part c and the assumption of a new 30-year fixed mortgage; what will Sallys new monthly paymentsbe?

5. Mike in the process of tightening its credit policies to reduce its days sales outstanding (DSO). Mike currently has $1,500,000 in accounts receivable, with a DSO of 50 days. The industry average DSO is 30 days. Mikes CFO does recognize that in tightening credit policies and pressuring customers to pay on time the firm will experience a drop in sales of approximately 8%.

a. What will Mikes level of accounts receivable be following the proposed changes above?

b. Briefly explain why this change in accounts receivable management policy may or may not be worth the loss in sales that Mikes Inc. would experience.