Business, 27.07.2021 18:50 jordantay208
Roy decides to buy a personal residence and goes to the bank for a $150,000 loan. The bank tells him that he can borrow the funds at 4% if his father will guarantee the debt. Roy's father, Hal, owns a $150,000 CD currently yielding 3.5%. The Federal rate is 3%. Hal agrees to either of the following:
Roy borrows from the bank with Halâs guarantee to the bank
Cash in the CD (with no penalty) and lend Roy the funds at 2% interest.
Hal is in the 33% marginal tax bracket. Roy, whose only source of income is his salary, is in the 15% marginal tax bracket. The interest Roy pays on the mortgage will be deductible by him.
Which option will maximize the familyâs after-tax wealth?
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Roy decides to buy a personal residence and goes to the bank for a $150,000 loan. The bank tells him...
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