Question: You are enrolling in an MBA program To pay your
You are enrolling in an MBA program. To pay your tuition, you can either take out a standard student loan (so the interest payments are not tax deductible) with an EAR of 51⁄2% or you can use a tax-deductible home equity loan with an APR (monthly) of 6%. You anticipate being in a very low tax bracket, so your tax rate will be only 15%. Which loan should you use?
Answer to relevant QuestionsYour best friend consults you for investment advice. You learn that his tax rate is 35%, and he has the following current investments and debts:A car loan with an outstanding balance of $5000 and a 4.8% APR (monthly ...Suppose that General Motors Acceptance Corporation issued a bond with 10 years until maturity, a face value of $1000, and a coupon rate of 7% (annual payments). The yield to maturity on this bond when it was issued was 6%.a. ...Prices of zero-coupon, default-free securities with face values of $1000 are summarized in the following table:Suppose you observe that a three-year, default-free security with an annual coupon rate of 10% and a face value ...What is the forward rate for year 2 (the forward rate quoted today for an investment that begins in one year and matures in twoyears)?How many IRRs are there in part (a) of Problem 5? Does the IRR rule give the right answer in this case? How many IRRs are there in part (b) of Problem 5? Does the IRR rule work in this case?
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