Mr. Abbot is buying a newhouse, and he is taking out a 30-year mortgage. Mr. Abbot will borrow $205,000 from abank, and to repay the loan he will make 360 monthly payments(principal andinterest) of $1,301.14 per month over the next 30 years. He can deduct interest payments on his mortgage from his taxableincome, and based on hisincome, David is in the 30% tax bracket.

a. What is thebefore-tax interest rate(per year) onDavid's loan?

b. What is theafter-tax interest rate that David ispaying?

All the information is there.