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Sasha 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

Sasha 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 T points and $20000 in closing costs to get the new loan. Think of the refinancing decision as an investment for Sasha, he pays a fee now but saves money in the future in the form of lower payments. 



What is the IRR of the reļ¬nancing option for Sasha assuming he stays in the house for another 5 years (meaning he stays a total of8 years)?

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SOLUTION The IRR of the refinancing option for Sasha is 804 We will first calculate the present value of the future payments under the new loan terms ... blur-text-image

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