The following 2 questions related to each other.

1. Calculate the effective annual interest rate on the following loan? Set up the IRR formula using summation notation. (20 pts)

Loan amount: $100,000

Term: 10 years

Discount Points: 2

Payments: Annual

Interest Rate: 7% (annual)

2. Suppose that after you have made 2 years of payments interest rates drop. You can refinance your loan from question ABOVE at the following terms: (20 pts)

Term: 8 years

Discount Points: 9

Payments: Annual

Interest Rate: 5% (annual)

Does it make sense to refinance? For full credit, you should calculate the effective interest rate of the refinanced loan and compare it the effective interest rate in question ABOVE. Set up the IRR formula for the refinanced loan using summation notation and either upload your excel workbook or screenshot and paste your excel calculations to find the effective interest rate.