Your best friend consults you for investment advice. You learn that his tax rate is

34%,

and he has the following current investments and debts:

A car loan with an outstanding balance of

$5,000

and a

4.77%

APR (monthly compounding)

Credit cards with an outstanding balance of

$10,000

and a

14.93%

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

5.17%

APR (daily compounding)

A tax-deductible home equity loan with an outstanding balance of

$25,000

and a

5.07%

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?

Question content area bottom

Part 1

a. Which savings account pays a higher after-tax interest rate? (Hint: When calculating the money market return, make sure to carry at least six decimal places in all calculations.)

Regular savings pays?

Money Market pays?

(Round to two decimal places.)