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    lrb101's Avatar
    lrb101 Posts: 1, Reputation: 1
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    #1

    Jan 27, 2014, 06:14 PM
    Finance homework help
    Kim Davis is in the 40% personal tax bracket. She is considering investing in HCA taxable bonds that carry a 12% interest rate.

    a. What is her after tax yield interest rate on the bonds?

    b. Suppose the hospital has issued tax-exempt bonds that have an interest rate of 6% With all else the same, should Kim buy the HCA or the hospital bonds?

    c. With all else the same, what interest rate on the tax exempt hospital bonds would make Kin indifferent between these bonds and the HCA bonds?

    I have a formula but not sure how to apply it AT=BT x (1-T).
    ma0641's Avatar
    ma0641 Posts: 15,675, Reputation: 1012
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    #2

    Jan 27, 2014, 06:43 PM
    She gets 60% after tax. How much is that vs 6% non taxable? Use $1000 as bond value. Once you get values, "c" is easily answered.
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