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Suppose you buy a fridge for $900. You agree to pay off the total amount with monthly payments over 4 years at j12 = 7%.

Suppose you buy a fridge for $900. You agree to pay off the total amount with monthly payments over 4 years at j12 = 7%. If you wish to pay off the contract early you will have to pay a penalty equal to 3 months interest on the outstanding balance. After 12 payments you see that interest rates at your bank are j12 = 6%.

(a) Calculate the original monthly payment.

Answer: $ -----

(b) Calculate the new monthly payment if you were to refinance under your banks interest rate.

Answer: $ --------

(c) Should you refinance?

Answer: $------------

Correct Answers:

21.56

21.62

no

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