Weighted average cost of capitalPersonal Finance ProblemJohn Dough has just been awarded his degree in business. He has three education loans outstanding. They all mature in 5 years and he can repay them without penalty any time before maturity. The amounts owed on each loan and the annual interest rate associated with each loan are given in the following table:

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John can also combine the total of his three debts (that is, $64,000) and create a consolidated loan from his bank. His bank will charge an annual interest rate of

4.9%

for a period of 5 years. Should John do nothing (leave the three individual loans as is) or create a consolidated loan (the $64,000 question)?

Loan

Balance due

Annual

interest rate

1

$22,000

4.2%

2

$10,000

7.2%

3

$32,000

3.2%