After-tax yield on the bonds

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

(a) Need 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, is it worth it for John buy the HCA or the Twin Cities bonds.

(c) With all else the same, need the interest rate on the tax-exempt Twin Cities bonds would make John indifferent between these bonds and the HCA bonds.

Reference no: EM132203755

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