GROUP ASSIGNMENT COVER SHEET

STUDENT DETAILS
Student Student ID
name: Đoàn Nguyễn Hà Uyên number: 21000354
Student
name: Nguyễn Trương Hiền Thảo Student ID number: WSU21000088
Student
name: Đậu Thị Hồng Nhung Student ID number: 21000536
Student
name: Huỳnh Thanh Ngọc Diệp Student ID number: 21000407
Student
name: Nguyễn Đức Toàn Student ID number: 21000594
Student
name: Nguyễn Tấn Anh Student ID number: B1112015118
UNIT AND TUTORIAL DETAILS

Unit Unit
name: Corporate Finance number: CF-T123WSB-1
Tutorial/
Lecture: : 72-hour Take-home Exercise Class day and time: Tuesday: 12:00 - 15:15
Lecturer or Tutor
name: Dr. Nguyen Thi Tuyet Nhung
ASSIGNMENT DETAILS

Title: Group 1 - Exercise 1.

Length Due Date
: date: 13/2/2023 submitted: 15/12/2023

DECLARATION
I hold a copy of this assignment if the original is lost or damaged.
I hereby certify that no part of this assignment or product has been copied from any other
student’s work or from any other source except where due acknowledgement is made in the
assignment.
I hereby certify that no part of this assignment or product has been submitted by me in
another (previous or current) assessment, except where appropriately referenced, and
with prior permission from the Lecturer / Tutor / Unit Coordinator for this unit.
No part of the assignment/product has been written/ produced for me by any other
person except where collaboration has been authorised by the Lecturer / Tutor /Unit
Coordinator concerned.
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software programs for the purpose of detecting possible plagiarism (which may retain a
copy on its database for future plagiarism checking).
Student’s
signature: Uyên
Student’s
signature: Thảo
Student’s Nhung
signature:
Student’s
signature: Diệp
Student’s
signature: Toàn
Student’s
signature: Anh
Note: An examiner or lecturer / tutor has the right to not mark this assignment if the above
declaration has not been signed.
Take-home Exercise 1
The mortgage on your house is five years old. It required monthly payments of
$1518, had an original term of 30 years, and had an interest rate of 8% (APR). In the
intervening five years, interest rates have fallen and so you have decided to
refinance—that is, you will roll over the outstanding balance into a new mortgage.
The new mortgage has a 30-year term, requires monthly payments, and has an
interest rate of 6% (APR).
a. What monthly repayments will be required with the new loan?
b. If you still want to pay off the mortgage in 25 years, what monthly payment should
you make after you refinance?
c. Suppose you are willing to continue making monthly payments of $1518. How long
will it take you to pay off the mortgage after refinancing?
d. Suppose you are willing to continue making monthly payments of $1518, and want
to pay off the mortgage in 25 years. How much additional cash can you borrow today
as part of the refinancing?

ANSWER:
a) Monthly payments = C =$1518
𝑡1 = 25 (years) = 300 (months)
Old mortgage:
Old monthly interest rate:
8% 1
⇒ 𝑟1= 12
= 150
Present value of existing loan:
−𝑡1 −300
1
⎡ 1−(1+𝑟1) ⎤ ⎡ 1−(1+ 150 ) ⎤
⇒P𝑉1= 𝐶1×⎢ ⎥ = 1518× ⎢ ⎥ = 196678.9453
⎢ 𝑟1 ⎥ ⎣
1
⎦
⎣ ⎦ 150

This is the amount of new loan, so the PV of the new loan is $196678.9453

New mortgage:
t=30 (years) =360 (months)
New monthly interest rate:
6% 1
⇒𝑟2= 12
= 200
Monthly payment for the new loan:
−𝑡 −360
1
⎡ 1−(1+𝑟2)⎤ 1−(1+ 200 )
⇒ 𝑃𝑉2= 𝐶2×⎢ ⎥ = 196678.9453× ⎡⎢ ⎤
⎥ = 32804398.8
⎢ 𝑟2 ⎥ ⎣
1
⎦
⎣ ⎦ 200

1 −360
⎡ 1−(1+ 200 ) ⎤
⇒ 196678. 9453 = 𝐶2×⎢ 1 ⎥
⎣ 200 ⎦
⇒ 𝐶2 = 1179, 189649
Therefore, the monthly repayment for the new loan is $1179,189649

b) Monthly payments = C = $1518

t = 25 (years) = 300 (months)
The present value of existing loan remain $196678.9453

−𝑡
1−(1+𝑟)
P𝑉 = 𝐶 × ⎡⎢ 𝑟
⎤
⎥
⎣ ⎦
1 −300
⎡ 1−(1+ ) ⎤
⇒ 196678.9453 = 𝐶×⎢ 200
1 ⎥
⎣ 200 ⎦
⇒ 𝐶 =1267,205
Therefore, if we pay off the mortgage in 25 years, the monthly payment is $1267,205 after
refinancing

−𝑡
1−(1+𝑟)
c) PV = 𝐶× ⎡⎢ 𝑟
⎤
⎥
⎣ ⎦
1 −𝑡
⎡ 1−(1+ 200 ) ⎤
⇒196678.9453 = 1518 × ⎢ 1 ⎥
⎣ 200 ⎦
⇒ 𝑡 =209,245=210 months 17.5 years
Therefore, if we are willing to continue making monthly payments of $1518, it will
take 17.5 years for us to pay off the mortgage after refinancing?

d) The amount of loan we can borrow:

−𝑡
1−(1+𝑟)
PV = 𝐶× ⎡⎢ 𝑟
⎤
⎥
⎣ ⎦
1 −300
⎡ 1−(1+ ) ⎤
= 1518 × ⎢ 200
1 ⎥
⎣ 200 ⎦
= 235604,0196
→ 𝑇ℎ𝑒 𝑎𝑑𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡 𝑤𝑒 𝑐𝑎𝑛 𝑏𝑜𝑟𝑟𝑜𝑤:
= 235604,0196 - 196678. 9453
= 38925,074
If we continue making monthly payments of $1518, and want to pay off the mortgage
in 25 years the additional amount we can borrow is $38925,074