Tom and Marie have a 30-year $150,000 mortgage with an 8% interest rate convertible monthly. Immediately after the 120th payment, they refinance the mortgage. The interest rate is reduced to 6.5%, convertible monthly, and the term is reduced to 20 years (so there are 10 years of payments remaining). They also make an additional payment of $20,000 at the time of refinancing. Calculate their new monthly payment.

Their underlying asset beta is closest to is 1.08

Explanation:

According to the given data we have the following:

Debt is given as $78 billion

Equity is given as $142 billion

equity beta given as 1.68

Therefore, in order to calculate the underlying asset beta we would have to use the formula of the the equity beta for a levered firm as follows:

betaE =beta A [1 + (Debt / Equity)]

1.68 = \beta A [1 + ($78 B/ $142 B)]

1.68 = \beta A [1 + 0.5493]

betaA = 1.68 / 1.5493

betaA = 1.08

Their underlying asset beta is closest to is 1.08