Suppose that five years ago you borrowed $500,000 using a 30-year fixed-rate mortgage with an annual interest rate of 7.00% with monthly payments and compounding. the interest rate on 30-year fixed- rate mortgages has fallen to 6.25% and you are wondering whether you should refinance the loan. refinancing costs are expected to be 4% of the new loan amount.

a) what is the net present value of refinancing if you make all of the scheduled payments on the new loan?
b) what is the net present value of refinancing if you pay off the new loan at the end of the 6th year?
c) how many payments do you need to make on the new loan in order for refinancing to have a positive net present value?

Your company is starting a new r& d initiative: a development of a new drug that dramatically reduces the addiction to smoking. the expert team estimates the probability of developing the drug succesfully at 60% and a chance of losing the investment of 40%. if the project is successful, your company would earn profits (after deducting the investment) of 9,000 (thousand usd). if the development is unsuccessful, the whole investment will be lost -1,000 (thousand usd). your company's risk preference is given by the expected utility function: u(x) v1000 +x, where x is the monetary outcome of a project. calculate the expected profit of the project . calculate the expected utility of the project . find the certainty equivalent of this r& d initiative . find the risk premium of this r& d initiative e is the company risk-averse, risk-loving or risk-neutral? why do you think so?