# To be indifferent between investing in the two bonds

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To be indifferent between investing in the two bonds, the Surething, Inc. bond should provide Hugh the same after-tax rate of return as the City of Heflin bond (5.25 percent). To solve for the required pretax rate of return we can use the following formula: After-tax return = Pretax return × (1 − Marginal tax rate). Surething, Inc. needs to offer a 8.75 percent interest rate to generate a 5.25 percent after-tax return and make Hugh indifferent between investing in the two bonds – i.e., 5.25% = Pretax return × (1 − 40%); Pretax return = 5.25% / (1 − 40%) = 8.75%
7. Sin taxes are:
8. To calculate a tax, you need to know:
9. Campbell, a single taxpayer, earns \$208,000 in taxable income and \$6,500 in interest from an investment in State of New York bonds. (Use the U.S. tax rate schedule .) (Do not round intermediate calculations. Round "Federal tax" to 2 decimal places.) a. How much federal tax will she owe?
b. What is her average tax rate?
c. What is her effective tax rate?