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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Marvic Noche wants to buy a home entertainment center. Complete with a big-screen TV, DVD, and sound system, the unit would cost P450K. Marvic has over P1.5M in a money fund, so he can easily afford to pay cash for the whole thing (the fund is currently paying 5% interest, and Marvic expects that yield to hold for the foreseeable future). To stimulate sales, the dealer is offering to finance the full cost of the unit with a 36- month installment loan at 9%, simple.
Marvic wants to know; should he pay in cash for the home entertainment center or buy it on time? (Note: Assume Marvic is in the 28% tax bracket and that she itemizes deductions on her tax returns.) Explain briefly
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