Kim davis is in the 40 percent tax bracket she is, Finance Basics

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Kim davis is in the 40 percent tax bracket she is

Question: Kim Davis is in the 40 percent tax bracket, She is considering investing in HCA (taxable) bonds that carry a 12 percent interest rate.

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

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?

c. With all else the same, what interest rate on the tax-exempt Twin Cities bonds would make Kim indifferent between these bonds and the HCA bonds?

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Finance Basics: Kim davis is in the 40 percent tax bracket she is

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