wi98quizmba810

# wi98quizmba810 - OSU Quiz MBA 810 Anil K Makhija Winter...

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OSU Quiz: MBA 810 Anil K. Makhija, Winter 1998 Time allowed: 1 hour 30 min. Closed book except for formula sheet. There is considerable credit for showing procedure. Good luck! 1.Judy financed her home mortgage ten years ago. At the time, she borrowed \$100,000 at an annual rate of 10% for a 20-year period from The Old Bank. Because she has been making her monthly payments on time, she can now (t=0) refinance her remaining mortgage (120 payments) at a favorable rate of 6.5% annual rate for a 10-year (120 payments) loan from The New Bank. While The New Bank will not charge any transactions costs, The Old Bank requires that a penalty of \$1,000 be paid (t=0) if a mortgage is prematurely paid-off. (A) First calculate the value of the remaining loan according to The Old Bank, i.e., using the rate The Old Bank charges. Next, if this value is to be paid off with the rate charged by The New Bank, what monthly payments will she be making to The New Bank (3 points). (B) Finally, calculate the gain/loss (t=0) to Judy from refinancing her loan with The New Bank using the 6.5% rate, and recommend what she should do (3 points).

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wi98quizmba810 - OSU Quiz MBA 810 Anil K Makhija Winter...

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