Weighted average cost of capital Personal Finanoe Problem Johin Dough has just b

Question

Weighted average cost of capital Personal Finanoe Problem Johin Dough has just been awarded hi wthout penalty any Sme betore maunity. The amounts owed on eath loan and the degree in business He has re education loans outstanding They all mature in 5 years and can be cai annus intert ssoced with eah laan are gven in the folowing table Jon can also amire te total of ha hree debts Otrat is, S64,00) ad eave the three individual loans as is) or creale a consoldated loan (the $64,000 questio create a co oldated loan ham his bark Habaek wal charge an annual interest rate of 95%for a pen dofSyman Should J tin do roti Data Table Cick an the oon located on the top-right comer of the data table below in arder to oopy its contents into a spreadsheet) Loanance ad Annus $29,000 $6.000 29.,000 10956 Priet Done

Explanation / Answer

Weighted Annual Interest on current loan portfolio

If John does nothing then the average interest to be paid by him will be 7.73% whereas if he consolidates he will have to pay 9.1%

Therefore John should do nothing that is leave the three individual loans as it is.

The Weighted Average annual interest rate on John's current loan portfolio is 7.73%

Loan Balance Due (in$) weight assigned (w) Annual Interest Rate (in%) (r) w * r (in%) 1 29000 0.453125 7.9 3.5796875 2 6000 0.09375 10.9 1.021875 3 29000 0.453125 6.9 3.1265625 Weighted Average 7.73

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