Suppose you buy a fridge for $940. You agree to pay off the total amount with monthly payments over 3 years at j₁₂ = 10%. If you wish to pay off the contract early you will have to pay a penalty equal to 2 months' interest on the outstanding balance. After 12 payments you see that interest rates at your bank are j₁₂ = 8%.

(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: ? yes no