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Kim Davis is in the 40 percent tax bracket, she is considering investing in HCA (taxable) bonds that carry a 12 percent interest rate. a.

Kim Davis is in the 40 percent tax bracket, she is considering investing in HCA (taxable) bonds that carry a 12 percent interest rate.

a. What is her 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.

c. With all else the same, should Kim buy the HCA or the Twin Cities bonds? With all else the same, what interest rate on the tax-exempt Twin Cities bonds would make Kim indifferent between these bonds and the HCA bonds?

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