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A borrower is repaying a $8000 loan to bank A at j12=15% with monthly payments over 3 years. Just after the 12th payment he has
A borrower is repaying a $8000 loan to bank A at j12=15% with monthly payments over 3 years. Just after the 12th payment he has the balance refinanced at j12=12%. Bank A charges a penalty on early repayment equal to 2 month's payment. Should he refinance? To answer the question attempt the following parts.
1. What is the size of payment he makes to bank A. *
2. How much should he borrow from the bank providing refinance at j12=12% *
3. What is the size of new payment If he decides to refinance (tenure of the loan remains same)? *
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