QUESTION
Please make comparison if i buy asb loan rm200,000 and invest with consistent return income of 5.5 % per year and interest expenses of 4.5% or borrow money of RM200,000 personal loan of interest expenses 5% and return income of average per year is 10%. investing in unit trust In 7 years which is more profitable?
ANSWER
To determine which option is more profitable over 7 years for a loan amount of **RM 200,000**, we will calculate the **net returns** for both scenarios. Here's the step-by-step breakdown:
---
### **Option 1: ASB Loan**
- **Loan Amount**: RM 200,000
- **Loan Interest Rate**: 4.5% per year
- **Investment Return Rate**: 5.5% per year
- **Tenure**: 7 years
#### Step 1: Calculate the total interest expense on the loan.
Assuming the loan is amortized over 7 years, the total interest paid can be approximated.
- **Total Interest Expense**: ~RM 33,000 (approximate over 7 years at 4.5% interest).
#### Step 2: Calculate the total investment return.
The investment grows at 5.5% per year. Using the compound interest formula:
\[
FV = PV \times (1 + r)^n
\]
Where:
- \(FV\) = Future Value
- \(PV\) = Principal Amount (RM 200,000)
- \(r\) = Annual Return Rate (5.5% or 0.055)
- \(n\) = Number of Years (7)
\[
FV = 200,000 \times (1 + 0.055)^7
\]
\[
FV = 200,000 \times 1.454 \approx RM 290,800
\]
#### Step 3: Calculate the net return.
Subtract the total interest expense from the investment return.
\[
Net Return = FV - Principal - Total Interest
\]
\[
Net Return = 290,800 - 200,000 - 33,000 = RM 57,800
\]
---
### **Option 2: Personal Loan for Unit Trust Investment**
- **Loan Amount**: RM 200,000
- **Loan Interest Rate**: 5% per year
- **Investment Return Rate**: 10% per year
- **Tenure**: 7 years
#### Step 1: Calculate the total interest expense on the loan.
Assuming the loan is amortized over 7 years, the total interest paid can be approximated.
- **Total Interest Expense**: ~RM 37,500 (approximate over 7 years at 5% interest).
#### Step 2: Calculate the total investment return.
The investment grows at 10% per year. Using the compound interest formula:
\[
FV = PV \times (1 + r)^n
\]
Where:
- \(FV\) = Future Value
- \(PV\) = Principal Amount (RM 200,000)
- \(r\) = Annual Return Rate (10% or 0.10)
- \(n\) = Number of Years (7)
\[
FV = 200,000 \times (1 + 0.10)^7
\]
\[
FV = 200,000 \times 1.9487 \approx RM 389,740
\]
#### Step 3: Calculate the net return.
Subtract the total interest expense from the investment return.
\[
Net Return = FV - Principal - Total Interest
\]
\[
Net Return = 389,740 - 200,000 - 37,500 = RM 152,240
\]
---
### **Comparison**
- **ASB Loan Net Return**: RM 57,800
- **Personal Loan for Unit Trust Net Return**: RM 152,240
---
### **Conclusion**
The **personal loan for unit trust investment** is significantly more profitable, yielding a net return of **RM 152,240** compared to the ASB loan's net return of **RM 57,800** over 7 years. However, this analysis assumes consistent returns and does not account for risks such as market volatility, loan default risks, or changes in interest rates. Always consult a financial advisor before making investment decisions.
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