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Generate for the two options to be equal

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Mr Jones earns $80,000 per annum. He has a $300,000 personal mortgage with repayments of $32,000 per annum. The interest rate is 5% per annum (so the interest component is $15,000).

  • a) How many years will it take to pay off the loan?

Mr Jones has the opportunity to invest into an Australian Unit Trust that will pay 7% interest per annum, with no capital gains. Mr Jones has been advised to make interest only payments on his personal mortgage and invest the balance of what he is repaying now ($17,000) into this Unit Trust investment.

  • b) Using a graph, show Mr Jones which option is best over a 20 year period.
  • c) What rate of return would the investment need to generate for the two options to be equal?

If it is required, assume that the tax rate is a flat 30%.

Reference no: EM132364715

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