Using the facts in the previous problem, what interest rate does the state of New York need to offer to make Fergieindifferent between investing in the two bonds?
In previous problem,
Fergiehas the choice between investing in a State of New York bond at 5 percent and a Surething bond at 8 percent. Assuming that both bonds have the same nontax characteristics and that Fergiehas a 30 percent marginal tax rate, in which bond should she invest?