You are paying 5% on your fixed-rate mortgage & earning 6% on your stock index fund. You are almost certain the stock market will remain steady for the foreseeable future. You recently received money from a very generous aunt. You decide either to invest the money in your stock index fund or pay down your mortgage. Your tax rate is 20%. What should you do? a. Invest in the index fund because your after-tax mortgage cost is 4,0% & you are earning an after-tax rate of 4.8% on your index fund.
b. Pay down your mortgage because your after-tax mortgage cost is 4,8% & you are earning an after-tax rate of 4% on your index fund.
c. Invest in the index fund because your after-tax mortgage cost is 4.8% & you are earning an after-tax rate of 4% on your index fund.
d. None of the analyses is correct.