John Doe is in the 40 percent personal tax bracket. He is considering investing in HCA bonds that… 1 answer below »

John Doe is in the 40 percent personal tax bracket. He is considering investing in HCA bonds that carry a 12 percent interest rate.

Don't use plagiarized sources. Get Your Custom Essay on
John Doe is in the 40 percent personal tax bracket. He is considering investing in HCA bonds that… 1 answer below »
For as low as $13/Page
Order Essay

a. What is his 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 John 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 John indifferent between these bonds and the HCA bonds?