Question: When he purchased his home, AI Silva borrowed $80,000 at 10% interest to be repaid in 25 equal annual end-of-year payments. After making 10 payments,

When he purchased his home, AI Silva borrowed $80,000 at 10% interest to be repaid in 25 equal annual end-of-year payments. After making 10 payments, AI found he could refinance the balance due on his loan at 9% interest for the remaining 15 years. To refinance the loan, AI must pay the original lender the balance due on the loan, plus a penalty charge of 2% of the balance due; to the new lender he also must pay a $1000 service charge to obtain the loan. The new loan would be made equal to the balance due on the old loan, plus the 2% penalty charge, and the $1000 service charge. Should AI refinance the loan, assuming that he will keep the house for the next 15 years? Use an annual cash flow analysis in working this problem.

Step by Step Solution

★★★★★

3.31 Rating (160 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

Original Loan Annual Payment 80000 AP 10 25 8816 Balance due a... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

7-B-E-M (788).docx

120 KBs Word File

Students Have Also Explored These Related Economics Questions!

Instructions Several items are omitted from the income statement and cost of goods manufactured statement data for two different companies for the month of May. 1 2 Materials inventory, May 1 3...

A loan of $5000 is to be repaid in three equal installments due 60, 120, and 180 days after the date of the loan. If the focal date is the date of the loan and interest is 6.9% p.a., compute the...

A loan of $14 400 is to be repaid in end-of-the-quarter payments of $600. How many payments are required to repay the loan at 10.5% compounded quarterly?

A debt of $40 000 is to be repaid in installments due at the end of each month for seven years. If the payments are deferred for three years and interest is 7% compounded quarterly, what is the size...

When he purchased his home, AI Silva borrowed $80,000 at 10% interest to be repaid in 25 equal annual end-of-year payments. After making 10 payments, AI found he could refinance the balance due on...

When he financed his firm s building, Al Silva borrowed $ 2 8 0 , 0 0 0 at 9 % interest to be repaid in 3 0 equal annual end - of - year payments. After making 1 0 payments, Al found he could...

Pls write out what equations you used. Not excel. Uiversiy of Tennessee at Martin 6-34 When he financed his firm's building, Al Silva bor- rowed $280,000 at 10% interest to be repaid in 25 equal...

(Compound interest) To what amount will the following investments accumulate? a. $5,200 invested for 8 years at 9 percent compounded annually b. $8,200 invested for 7 years at 8 percent compounded...

Question one: Casino.com Corporation is building a $25 million office building in Las Vegas and is financing the construction at an 80 percent loan-to-value ratio, where the loan is in the amount of...

I am working on a practice exam for my finance class, and was wondering how to compute the following problems via formula (algebraically) and through a financial calculator if applicable. I have...

Given below are the returns of Oracle Computers and Microsoft Corporation over the past 6 years: Microsoft Corporation Year Ending 31 March 2023 31 March 2022 4% 6% 31 March 2021 -4% 21% 18% 1396 31...

Explain how and why an increase in each of the following affects the prices of both call and put options, holding all other variables constant: i. The current stock price ii. The strike price b. What...

In a recent presentation, Larry Huggins made two statements about dividends: Statement 1 : "One practical concern with a stock split is that it will reduce the company's price - to - earnings ratio."...

Create a sample profit and loss and balance sheet statement for Apple.try to be detailed as much as possible . and then explain how you would derive the cost of a particular product line.

Calculate the Weighted Average Cost of Capital (WACC) using the Capital Asset Pricing Model (CAPM) to estimate the cost of equity. (b) Calculate the financial viability of the expansion project using...

Discuss the differences between linear and nonlinear optimization methods. Include specific examples of nonlinear optimization methods and discuss which aspects of these models make them different...

You wish to borrow $2,000 to be repaid in 12 monthly installments of $170.30. The annual terest rate (APR) is? A) 22% B) .04% C) 4% D) 24%

*19. As compared with the FIFO method of costing inventories, does the LIFO method result in a larger or smaller net income in a period of rising prices? What is the comparative effect on net income...

A television set costs $500 in the United States. The same set costs 550 euros in France. If purchasing power parity holds, what is the spot exchange rate between the euro and the dollar?

If British pounds sell for $1.50 (U.S.) per pound, what should dollars sell for in pounds per dollar?

Suppose that 1 Swiss franc could be purchased in the foreign exchange market for 60 U.S. cents today. If the franc appreciated 10 percent tomorrow against the dollar, how many francs would a dollar...

If an analyst uses the constant dividend growth model to value a stock, which of the following is certain to cause the analyst to increase her estimate of the current value of the stock (assuming, of...

Could you help me with number 6 a and c and d please. I'm struggling with this. A Q Search Assignment 1-S1-2021 Page 4 of 4 - Edited Question 6 [8 Marks] A magician performs the following card trick....

1.The majority of clothing retailers use mannequins to display their merchandise, with approximately onethird displaying mannequins with heads and twothirds displaying mannequins without heads....