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If the client itemizes deductions, paying down a loan with deductible interest provides a risk-free rate of return effectively equal to the loan's interest rate minus the marginal rate of tax savings forgone. In the United States, returns on the Nasdaq and S&P 500 indices failed to exceed the traditional risk-free rate of 5%. Cap rates are expected to rise because the 10-year-treasury is above the risk-free rate. |
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