(5 bookmarks) Rico needs approximately $2,800 to buy a new computer. A two-year
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Question
(5 bookmarks)
Rico needs approximately $2,800 to buy a new computer. A two-year unsecured loan through the credit union is available for 12.75 percent interest. The current rate on his revolving home equity line is 9.50 percent, although he is reluctant to use it. Rico is in the 15 percent federal tax bracket and the 5.75 percent state tax bracket. Which loan should he choose? Why? Regardless of the loan chosen, Rico wants to pay off the loan in 24 months. Calculate the monthly payments for him, assuming both loans use the simple interest calculation method. Click on the table icon to view the MILPF table.. Complete all 6 problems:
Question 1- The after-tax cost of the home equity loan is ?%. (Round to two decimal places.)
Monthly Installment Loan Tables ($1,000 loan with interest payments compounded monthly) i 6 12 18 24 30 36 48 60 72 84 96 12.75% 172.92 89.2 61.33 47.42 39.1 33.57 26.7 22.63 19.94 18.06 16.67 5.75% 169.47 85.95 58.12 44.21 35.87 30.31 23.37 19.22 16.46 14.49 13.02 15.00% 174.03 90.26 62.38 48.49 40.18 34.67 27.83 23.79 21.15 19.3 17.95Explanation / Answer
Question 1- The after-tax cost of the home equity loan is ?%
Ans
Total combined federal and state tax rate = (15%+5.75%) = 20.75%
Before tax cost of the home equity loan = 9.50%
The after-tax cost of the home equity loan (considering the tax savings on both federal and state taxes) would be = 9.50 % x (1-.2075) = 7.53 %
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