Use the following information to answer the next 5 questions:

Alice owns a house, purchased five years ago. The original mortgage was for $240,000 with an interest rate of 8% and a term of 25 years. She paid 2 points. Interest rates have now fallen to 6% and a new mortgage can be obtained with 1 discount point. The new loans term would be 20 years. If the existing loan is paid off within 8 years of origination, a 1.5% prepayment penalty will be charged.

1. What is the initial investment for refinancing?

a. $5,536

b. $7,751

c. $9,966

d. $12,450

e. None of the above

2. What is the incremental monthly payment?

a. $226.10

b. $241.97

c. $265.77

d. $287.45

e. None of the above

3. What is incremental loan balance at the end of the 5th year?

a. $5,815

b. $2,995

c. $1,115

d. $995

e. None of the above

4. What is the NPV of refinancing the mortgage if Alice plans to sell the house 5 years from now and her required rate of return is 8%?

a. $7,044

b. $9,259

c. $11,474

d. $13,450

e. None of the above

5. How many months must Alice hold the new mortgage to recover her initial investment?

a. 32.5

b. 36.2

c. 52.3

d. 65.3

e. None of the above