Hugh has the choice between investing in a city of heflin bond at 6.45 percent or a surething bond at 10.40 percent. assuming th
at 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?
Surething
Inc. must give an interest rate of 17.33 percent to generate a 10.40 percent
after-tax return and make Hugh indifferent between investing in the two bonds.
To solve for
the pretax rate of return, we can use this formula:
First we need to isolate the variable so we add 15 to both sides which is w/4=43 then we need to multiply by 4 to both sides so its 4w=172 then divide by 4 which is 43 so the answer is w=43
