Question: In-class problem set Refinance Decision Five years ago you originated a $50,000 mortgage loan at 12% for 30 years with monthly compounding. Because rates are

In-class problem set Refinance Decision Five years ago you originated a $50,000 mortgage loan at 12% for 30 years with monthly compounding. Because rates are currently 10%, you are considering refinancing the unpaid mortgage balance of your existing loan for 30 years with monthly compounding. Your current loan has a 2% prepayment penalty and the new lender will charge you $1,000 in refinancing costs. Assume your opportunity cost of capital equals 12%. A. Should you refinance if the new loan is held to maturity? B. Should you refinance if the new loan is retired 120 months from now? (Note this is month 180 for the old loan)

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