Assume You Financed a New House with a 30-Year Fixed

question 25

Multiple Choice

Assume you financed a new house with a 30-year fixed rate mortgage at a 6% annual interest.rate.If you can deduct your mortgage interest payments from your taxable income and you are in the 30% tax bracket, what would be the real after-tax cost of borrowing if the average annual inflation rate is 4.2% over the 30-years period?

• A)+4.2%
• B)+1.8%
• C)+1.2%
• D)0%
• E)-1.2%

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Definitions:

Net Present Value

Net present value (NPV) is a financial metric used to evaluate the profitability of an investment, calculated by subtracting the initial investment from the sum of all future cash flows discounted back to their present value.

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Present Values

The current worth of a future sum of money or stream of cash flows, given a specified rate of return.

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Earnings from a company's core business operations, excluding non-operating income and expenses, taxes, and interest.