(a) What is the balance due on the original mort- gage (20 payments have been made in the last 5 years)? (b) How much will EnergyMax's payments drop with the new loan? (c) How much longer will the proposed loan run?
(a) What is the balance due on the original mort- gage (20 payments have been made in the last 5 years)? (b) How much will EnergyMax's payments drop with the new loan? (c) How much longer will the proposed loan run?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:EnergyMax Engineering constructed a small office
building for their firm 5 years ago. They financed
it with a bank loan for $450,000 over 15 years at
6% interest with quarterly payments and compound-
ing. The loan can be repaid at any time without
penalty. The loan can be refinanced through an insur-
ance firm for 4% over 20 years-still with quarterly
compounding and payments. The new loan has a
5% loan initiation fee, which will be added to the
new loan.
(a) What is the balance due on the original mort-
gage (20 payments have been made in the last 5
years)?
(b) How much will EnergyMax's payments drop
with the new loan?
(c) How much longer will the proposed loan run?
Expert Solution
Step 1: INTRODUCTION
Bank loan is the loan which is borrowed by borrower from bank. Bank charges interest on the borrowed amount. Higher is the interest rate on borrowings, more is the cost of borrowings for the borrower.
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