Could anyone provide answer for question 10 thank you

9. Tom got a 30 year fully amortizing FRM for $500,000 at 8%, with constant monthly payments. After 3 years of payments rates fall and he can get a 27-year FRM at 5%, but he must pay 7 points and $20000 in closing costs to get the new loan. Think of the refinancing decision as an investment for Tom, he pays a fee now but saves money in the future in the form of lower payments. What is the IRR of refinancing for Tom assuming he stays until maturity? IRR= 10.08% 10. In Q9, what is the IRR of refinancing for Tom assuming he prepays the new loan 5 years after refinancing? (Clarification: Tom will prepay the new loan 3+5=8 years after the house is purchased) |