2.3 Kim Davis is in the 40 percent personal tax bracket. She is considering investing in...
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2.3 Kim Davis is in the 40 percent personal tax bracket. She is considering investing in HCA (taxable) bond that carry a 12 percent interest rate.
a.
What is her
after-tax yield interest rate on the bonds?
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Insert your response here. |
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b.
Suppose twin
cities memorial hospital has issued tax-exempt bonds that have an
interest rate of 6 percent. With all else the same, should Kim buy
the HCA or the Twin Cities bonds?
|
||
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Insert your response here. |
Homework Answers
(a) Tax Rate = 40 % and Bond Yield = 12 %
After-Tax Bond Yield = (1-0.4) x 12 = 7.2 %
(b) Tax -Exempt Bond Yield = 6 %
Kim should opt for the HCA bonds as they provide a higher return than memorial hospital bonds.
Add Answer to:
2.3
Kim Davis is in the 40 percent personal tax bracket. She is
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