John must make payments on 40,000 in student loans at 7% interest compounded monthly, a house payment on an outstanding $100,000 home loan at 4% compounded monthly, and he wants to buy a $35,000 car. Current interest rates 5.5% compounded annually. He owes $6000 on his credit card that charges 1.5%/month and must make a minimum payment of $50/ month on it. He anticipates having $500/ month left after meeting expenses, including the minimum payments on loans and credit card. He is considering investing in the stock market.
a. What is the minimum MARR he should use to analyze this decision?
b. If he feels he can make 8%/year in the stock market, how should he spend his extra $500/month for the next year?