Sarantuya, a college student, feels that now is a good time to buy stocks. Howev

Question

Sarantuya, a college student, feels that now is a good time to buy stocks. However, because she doesn't have any savings, she decides to borrow $19,000 at an annual interest rate of 9 percent. She must make an interest-only payment each year for five years plus repay the entire principal in year five. On August 1, 20X8 when Sarantuya obtained the loan, Sarantuya invested $12,000 in several individual stocks and used the remaining $7,000 to pay her tuition for the year. Assuming Sarantuya's net investment income this year is greater than her investment interest expense this year, how much investment interest expense can she deduct in 20X8?

Explanation / Answer

Hence Loans Schedule for Amount of Rs. 19000 is given as below @9% interest rate.

she has to pay Rs. 1710 interest in first year and earn to minimum return to cover interest expences (1710/12000 = 14.25%)

YEAR OPENING EMI INTREST PRINCIPAL CLOSING BALANCE 1 19000 0 1710 0 19000 2 19000 0 1710 0 19000 3 19000 0 1710 0 19000 4 19000 0 1710 0 19000 5 19000 0 1710 19000 0

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