The interest rate on the existing loan is 6.2% and there's a remaining term of 3 years.  The three year U.S. Treasury Rate is 0.82%.   Note: assume the principal balance of the mortgage is $100—that simplifies the calculations.

a)             What's the difference between the current loan's interest rate and the three year U.S. Treasury rate? _________  

b)             What's the number of monthly payment periods remaining on the loan?  _____

c)             What periodic discount rate ( i ) should you use for discounting the monthly yield maintenance cash flows to Present Value?

d)             What would the present value (PV) of the income stream you set up be?  This PV is the prepayment penalty you must pay to refinance the loan at this early date

Answer rating: 100% (QA)

SOLUTION a The difference between the current loans interest rate and the three year US Treasury rat... View the full answer