One of the most important elements of deciding about taking any credit is the relevant cost which it is going to offer to the borrower. Higher the cost, more costly it would be for the borrower to take that debt. Based on this assumption, Nanci Tai shall prefer to take that source of credit which offers lowest cost to her. If we analyse the interest to be paid under above three methods, it seems that the adjusted balance method is one of the most appropriate source for her because under this option, she would be incurring lowest mark-up.
Considering the fact that she intends to increase the balance over the period of time that would mean that the overall finance cost is going to increase for her therefore most appropriate decision would be to prefer adjusted balance method. It is however; also critical to note that interest rates may be different under different sources and methods of credit therefore adjusted balance method would only be beneficial if all the credit sources of same determinations offer the same rate of interest.
Nanci therefore shall ensure that the interest rates offered are same and does not vary over the period of time so that the overall cost of credit can be managed. The above calculations suggest that the couple have three different options to exercise according to their risk taking abilities and investment horizon. If the couple is willing to take the risk, it can invest all their money into common stocks because it is the most lucrative investment offer based on the highest after tax yield.
However, since common stocks carry highest risk and less preferential rights over other stakeholders therefore couple can lose all its money because of the associate volatility of stock market. Second and more appropriate option would be to invest into municipal bonds because they are considered as risk free investments due to backing from Government and as such investors have the full assurance that there were will very negligible chance of default by the issuer.
However, bonds due to their preferential rights carry lesser rate of returns therefore investors have to make a tradeoff between their after tax yield and the investment horizon because investment grows slower under this method investment. Third option would be the combination of both as the couple can develop a portfolio which can offer relatively higher returns at the acceptable level of risk. It is therefore recommended that the couple should invest into combination of both the municipal bonds as well as common stocks.