Suppose you buy a fridge for $1040. You agree to pay off the total amount with monthly payments over 4 years at j12j12 = 9%. If you wish to refinance you will have to pay a penalty equal to 4 months' interest on the outstanding balance. After 12 payments you see that interest rates at your bank are j12j12 = 6.5%.

(a) Calculate the original monthly payment.

Answer: $

(b) Calculate the new monthly payment if you were to refinance under your banks interest rate. (Assume the original term does not change.)

Answer: $

(c) Should you refinance?

Answer: ? yes no

NOTE: When calculating a payment or outstanding balance, round appropriately and carry that value through further calculations.