Answered Essay: Please help by showing how to get each number! & Please use tax sheet provided on both problems!! Fergie has the choice hetween i

Please help by showing how to get each number! & Please use tax sheet provided on both problems!! Fergie has the choice hetween invesing in a State of New York bond at S percent and a Surething bond at 8 percent. Assuming that both bonds have the same nontax characteristics and that Fergie has a 30 percent marginal tax rate, in which bond should she invest? 40 APTER 1An Introduction to Tax 3 101.4 planning 47.) Using the facts in problem 46, what interest rate does the State of New Yo need to offer to make Fergie indifferent between investing in the two bon rk bond ds?

Please help by showing how to get each number! & Please use tax sheet provided on both problems!! Fergie has the choice hetween invesing in a State of New York bond at S percent and a Surething bond at 8 percent. Assuming that both bonds have the same nontax characteristics and that Fergie has a 30 percent marginal tax rate, in which bond should she invest? 40 APTER 1An Introduction to Tax 3 101.4 planning 47.) Using the facts in problem 46, what interest rate does the State of New Yo need to offer to make Fergie indifferent between investing in the two bon rk bond ds?

Expert Answer

 

Answer 46.
State of New York Bond – Income after Tax = 5%
Surething Bond – Income after Tax = 8% X (1 – 30%) = 5.60%
Fergie will choose Surething Bond.
Answer 47.
To be indifferent between the Bonds,
After Tax Earning of New York Bond = Afer tax earning of Surething Bond
After Tax Return = Pretax Return X (1 – Marginal Rate Tax)
Therefore,
Pretax return = 8% X (1 – 30%)
Pretax return = 5.60%
State of New York Bonds should offer 5.60% interest rate to make Fregie indiffrent between the two bonds.
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