quiz-mba810-wi99 - 1. Five years ago John obtained a...

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1. Five years ago John obtained a 25-year $200,000 mortgage loan for his house at annual stated rate of 10% from the Old Bank, requiring monthly payments. He is interested in making $50,000 worth of renovations on the house, and is considering two alternative financing options being offered by the New Bank: Option A: The New Bank will give him a second 20-year mortgage for a $50,000 loan at an annual interest rate of 9%. Option B: If he refinances his first mortgage through the New Bank, then the bank will give him a 20-year mortgage for the $50,000 for renovation plus whatever remaining amount he owes to the Old Bank at an annual rate of only 8%. Unfortunately, paying off the mortgage at the Old Bank has a penalty of $ 5,000. Which option, A or B, should he choose? [-- completely optional hint-- Compare (Old mortgage + Option A) versus Option B]. 2. At the Big Time Dealership, you have found the car you want. To take it home, the dealer wants an up front payment of $5,000 and the rest in monthly payments of $500 for the next
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