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Kitty [74]
3 years ago
14

Fergie has the choice between investing in a State of New York bond at 4.1 percent and a Surething Inc. bond at 6.8 percent. Ass

uming that both bonds have the same nontax characteristics and that Fergie has a 30 percent marginal tax rate, what interest rate does the state of New York bond need to offer to make Fergie indifferent between investing in the two bonds? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Business
1 answer:
iragen [17]3 years ago
7 0

Answer:

The state of New York should offer bonds at 4.76% to make indifference to purchase their bonds than Surething Inc.

Explanation:

the corporation has to pay income taxes while the State of New York do not pay for income taxes thus his yield is after-tax.

Surething Inc after tax rate:

pre-tax x (1 - tax-rate) =6.8% x ( 1 - 30%) = 0.068 x (1-0.30)  = 0.0476 = 4.76%

Currently the corporation bond yield a higher rate than the State of New york (4.76% against 4.10%)

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Cindy invests $10000 in an account that pays an annual rate of 3.96%, compounding semi-annually. approximately how much does she
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Annual Compound Formula is:

A = P( 1 + r/n) ^nt

Where:

A is the future value of the investment

P is the principal investment

r is the annual interest rate

<span>n is the number of  interest compounded per year</span>

t is the number of years the money is invested


So for the given problem:

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r = 0.0396

n = 2 since it is semi-annual

t = 2 years

 

Solution:

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