Assume That You Presently Have a Monthly Mortgage on a Rental

question 20

Multiple Choice

Assume that you presently have a monthly mortgage on a rental property with a stated interest rate of 7% APR.If your income tax rate is 20%,then the after tax EAR for your mortgage on a rental property is closest to:

• A) 5.6%
• B) 7.2%
• C) 5.8%
• D) 7.0%

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Definitions:

Treasury Bills

Short-term government securities with maturities of one year or less, sold at a discount from their face value.

Market Rate

The prevailing interest rate available in the marketplace for loans or investments, often used as a reference for setting the rates on loans.

Government Securities

Financial instruments issued by the government to finance its expenditures, offering a return in the form of interest payments to investors.

Bank Reserves

Bank reserves are the amount of cash that banks must hold either in their vaults or on deposit with a central bank, used to back deposits and ensure liquidity.