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Imagine that a borrower took out a 30-year, $150,000 loan at 7% with monthly payments in 2006. Fifteen years later, the borrower has the opportunity

Imagine that a borrower took out a 30-year, $150,000 loan at 7% with monthly payments in 2006. Fifteen years later, the borrower has the opportunity to refinance with a 15-year mortgage at 6%. However, the up front fees, which will be paid in cash, are $2,500.

Assuming the borrower can invest funds elsewhere at a rate of 12.5%, should they refinance? And why or why not? Please show all of your work and calculations.

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