You have the cash available to pay off a $6500 loan that will cost you $450 in interest this year and you are deciding whether to pay it off or make an investment. If you are in a 30 percent tax bracket, how much interest would you have to earn to make the investment a better decision?

Question

Quizplus · Accepted Answer

Since you are in a 30 percent tax bracket, the net cost of the loan is $450 x (1-0.3) = $315. To make the investment a better decision, it would need to earn at least $315 in interest. Therefore, the answer is more than $580 (which includes the $450 in interest and the $315 net cost of the loan).

You Have the Cash Available to Pay Off a $6500