Hugh has the choice between investing in a City of Heflin bond at 4.50 percent investing in a Surething bond at 7.05 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? (Round your answer to 2 decimal places.) Interest Rate:______%

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Song earns $125,000 taxable income as an interior designer and is taxed at an average rate of 25 percent (i.e., $31,250 of tax).

a. If Congress increases the income tax rate such that Songs average tax rate increases from 25 percent to 35 percent, how much more income tax will she pay assuming that the income effect is descriptive? (Round your intermediate calculations and final answer to 2 decimal places.)

Additional income tax:____________________

b. If the income effect is descriptive, the tax base and the tax collected will increase. True or False