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Your best friend consults you for investment advice. You learn that his tax rate is 37%, and he has the following current investments and debts:
Your best friend consults you for investment advice. You learn that his tax rate is 37%, and he has the following current investments and debts: - A car loan with an outstanding balance of $5,000 and a 4.84% APR (monthly compounding) - Credit cards with an outstanding balance of $10,000 and a 14.94% APR (monthly compounding) - A regular savings account with a $30,000 balance, paying a 5.41% effective annual rate (EAR) - A money market savings account with a $100,000 balance, paying a 5.15% APR (daily compounding) - A tax-deductible home equity loan with an outstanding balance of $25,000 and a 4.97% APR (monthly compounding) a. Which savings account pays a higher after-tax interest rate? b. Should your friend use his savings to pay off any of his outstanding debts
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