Hugh has the choice between investing in a City of Heflin bond at 4.80 percent or...

Hugh has the choice between investing in a City of Heflin bond at 4.80 percent or investing in a Surething Inc. bond at 7.25 percent. Assuming that both bonds have the same nontax characteristics and that Hugh has a 40 percent marginal tax rate, what interest rate does Surething Inc. need to offer to make Hugh indifferent between investing in the two bonds? (Round your answer to 2 decimal places.)

Interest rate=

Expert Solution

Interest rate does surething Inc. need to offer =Interest rate*(1-Tax Rate)= Interest of Surething Inc. Bond
Interest rate of Surething =4.80%/(1-40%) =8.00%

jeff jeffy answered 2 years ago

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