Loan AmountLoan TermFully AmortizedInterest RateOrigination FeePrepayment Penalty7.5%8.1%9.6%Old Loan4,000,00030 yearsYes7%3%7%10.1%New LoanWhat is the internal rate of return of refinancing the old loan at the end of Year 10? (choose the closest answer)6.8%20 yearsYes5.5%4%3%

IRR is the discount rate at which the net present value (NPV) of cash flows from an investment…

Answered: What is the internal rate of return of…

What is the internal rate of return of refinancing the old loan at the end of Year 10? (choose the closest answer) 6.8% 7.5% 8.1% 9.6% 10.1%

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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Concept explainers

Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.

Question

Loan Amount
Loan Term
Fully Amortized
Interest Rate
Origination Fee
Prepayment Penalty
7.5%
8.1%
9.6%
Old Loan
4,000,000
30 years
Yes
7%
3%
7%
10.1%
New Loan
What is the internal rate of return of refinancing the old loan at the end of Year 10? (choose the closest answer)
6.8%
20 years
Yes
5.5%
4%
3%

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