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QUESTION 4 Ann got a 30 year FRM with annual payments equal to $12,000 per year....

QUESTION 4 Ann got a 30 year FRM with annual payments equal to $12,000 per year. After 2 years of payments Ann will refinance the balance into a 28 year FRM with annual payments equal to $11,500 per year. Refinancing will cost Ann $2,500. Ann will prepay the new loan 3 years after refinancing. She will save $4,000 on her loan balance when she prepays. What is Ann’s annualized IRR from refinancing?

QUESTION 5 Lucy bought a house for $100,000. Lucy’s annual cost of ownership net of tax savings is exactly equal to the annual rent she would have paid to live in the same house. The house price grows 4.5% annually (compounded annually). Suppose buying costs are 5% (of the purchase price of the house) and selling costs are 8% (of the selling price of the house). Lucy will sell the house in one year. What is Lucy’s annualized IRR? (hint: it will be negative)

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jeff jeffy answered 1 year ago
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