Before-tax cost of debt and after-tax cost of debtDavid Abbot is buying a new house, and he is taking out a

30-year

mortgage. David will borrow

$210,000

from a bank, and to repay the loan he will make

360

monthly payments (principal and interest) of

$1,180.79

per month over the next

30

years. David can deduct interest payments on his mortgage from his taxable income, and based on his income, David is in the

30%

tax bracket.

a. What is the before-tax interest rate (per year) on David's loan?

b. What is the after-tax interest rate that David is paying?