Answer-first summary for fast verification
Answer: $102,000
A refinancing cost of **2 points** means the borrower must pay **2% of the outstanding balance** to exercise the prepayment option. - Outstanding balance = **$100,000** - 2 points = **$2,000** - Effective strike price = **$100,000 + $2,000 = $102,000** So the effective strike price is **$102,000**.
Author: Manit Arora
Ultimate access to all questions.
Q-52.3 If the cost to refinance is two (2) points on a mortgage loan with an outstanding balance of $100,000, what is the effective strike price of the prepayment option?
A
$2,000
B
$100,000
C
$102,000
D
$100,000 plus (+) discounted PV(2% over life of loan)
No comments yet.