Antonio would like to replace his golf clubs with a custom-measured set. A local sporting goods megastore is advertising custom clubs for $730730, including a new bag. In-store financing is available at 5.895.89 percent, or he can choose not to renew his $400400 certificate of deposit (CD), which just matured. The advertised CD renewal rate is 7.687.68 percent. Antonio knows the in-store financing costs would not affect his taxes, but he knows he'll pay taxes (2525 percent federal and 5.755.75 percent state) on the CD interest earnings. Should he cash in the CD or use the in-store financing? Why? Note: Round intermediate computations to at least five (5) decimal places. Question content area bottom Part 1 The after-tax CD earnings rate is 5.31845.3184%. (Round to two decimal places.) Part 2 Should he cash the CD or use the in-store financing? (Select the best choice below.) A. Antonio should cash in his CD to purchase the golf clubs because his after-tax CD earnings rate of 5.325.32% is less than the in-store financing rate of 5.895.89%. B. Antonio should use the in-store financing to purchase the golf clubs because 5.895.89% is the same as his CD earnings rate of 7.687.68%. C. Antonio should use the in-store financing to purchase the golf clubs because 5.895.89% is greater than his after-tax CD earnings rate of 5.325.32%.
Antonio would like to replace his golf clubs with a custom-measured set. A local sporting goods megastore is advertising custom clubs for $730730, including a new bag. In-store financing is available at 5.895.89 percent, or he can choose not to renew his $400400 certificate of deposit (CD), which just matured. The advertised CD renewal rate is 7.687.68 percent. Antonio knows the in-store financing costs would not affect his taxes, but he knows he'll pay taxes (2525 percent federal and 5.755.75 percent state) on the CD interest earnings. Should he cash in the CD or use the in-store financing? Why? Note: Round intermediate computations to at least five (5) decimal places. Question content area bottom Part 1 The after-tax CD earnings rate is 5.31845.3184%. (Round to two decimal places.) Part 2 Should he cash the CD or use the in-store financing? (Select the best choice below.) A. Antonio should cash in his CD to purchase the golf clubs because his after-tax CD earnings rate of 5.325.32% is less than the in-store financing rate of 5.895.89%. B. Antonio should use the in-store financing to purchase the golf clubs because 5.895.89% is the same as his CD earnings rate of 7.687.68%. C. Antonio should use the in-store financing to purchase the golf clubs because 5.895.89% is greater than his after-tax CD earnings rate of 5.325.32%.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Antonio would like to replace his golf clubs with a custom-measured set. A local sporting goods megastore is advertising custom clubs for
$730730,
including a new bag. In-store financing is available at
5.895.89
percent, or he can choose not to renew his
$400400
certificate of deposit (CD), which just matured. The advertised CD renewal rate is
7.687.68
percent. Antonio knows the in-store financing costs would not affect his taxes, but he knows he'll pay taxes
(2525
percent federal and
5.755.75
percent state) on the CD interest earnings. Should he cash in the CD or use the in-store financing? Why?Note: Round intermediate computations to at least five (5) decimal places.
Question content area bottom
Part 1
The after-tax CD earnings rate is
5.31845.3184%.
(Round to two decimal places.)Part 2
Should he cash the CD or use the in-store financing? (Select the best choice below.)
Antonio should cash in his CD to purchase the golf clubs because his after-tax CD earnings rate of
5.325.32%
is less than the in-store financing rate of
5.895.89%.
Antonio should use the in-store financing to purchase the golf clubs because
5.895.89%
is the same as his CD earnings rate of
7.687.68%.
Antonio should use the in-store financing to purchase the golf clubs because
5.895.89%
is greater than his after-tax CD earnings rate of
5.325.32%.
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