Using the facts in the previous problem, what interest rate does Surething, Inc., need to offer to make Hugh indifferent between investing in the two bonds?
In previous problem
Hugh has the choice between investing in a City of Heflin bond at 6 percent or a Surething bond at 9 percent. Assuming that both bonds have the same nontax characteristics and that Hugh has a 40 percent marginal tax rate, in which bond should he invest?