Which of the Following Statements Regarding the Break-Even Point for Paying

question 23

Multiple Choice

Which of the following statements regarding the break-even point for paying discount points in order to get a lower interest rate on the loan is correct?

• A)All else equal, the break-even point for paying points on an original mortgage is longer than the break-even point for paying points on a refinance.
• B)All else equal, the break-even point for paying points on an original mortgage is longer for a taxpayer who does not make extra principal payments each year on the loan than for a taxpayer who does make additional principal payments each year on the loan.
• C)All else equal, the break-even point for a taxpayer paying points on an original mortgage is longer when the taxpayer's marginal income tax rate increases in the years subsequent to the original financing compared to a taxpayer whose marginal tax rate does not change in the years subsequent to the year in which the loan is executed.
• D)None of the choices are correct.

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Definitions:

Prepaid Expenses

Payments made in advance for goods or services that will be received in the future.

Retained Earnings

The portion of a company's profits that is not distributed to shareholders as dividends but is instead reinvested in the business or held as a reserve.

Closing

The process of finalizing accounts at the end of an accounting period by clearing any balances and summarizing the financial activities.

Revenue Account

An account that records the income generated from a company's primary operations, such as sales of goods or services.