Item 1

Hugh has the choice between investing in a City of Heflin bond at 5.55 percent or investing in a Surething bond at 8.85 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: