Hugh has the choice between investing in a city of heflin bond at 6.45 percent or a surething bond at 10.40 percent. assuming that both bonds have the same nontax characteristics and that hugh has a 40 percent marginal tax rate. what interest rate does surething inc., need to offer to make hugh indifferent between investing in the two bonds?

Surething Inc. must give an interest rate of 17.33 percent to generate a 10.40 percent after-tax return and make Hugh indifferent between investing in the two bonds.

To solve for the pretax rate of return, we can use this formula:

 After-tax return = Pre-tax return x (1 – Marginal Tax Rate).

10.40% = Pre-tax return x (1 – Marginal Tax Rate);

Pre-tax return = 10.40% / (1 – Marginal Tax Rate) = 17.33%

the answer is c

step-by-step explanation:

8

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