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​Before-tax cost of debt and​ after-tax cost of debt  David Abbot is buying a new​ house,...

​Before-tax cost of debt and​ after-tax cost of debt  David 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?

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