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
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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.)
 
 
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​%.
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