At the beginning of the year you invest $40,000 of your own money plus $40,000 that you borrowed at 6% interest to purchase $80,000 worth of GoFast stock, which earns a return of 13%. You pay taxes on the money you make on the stock at the rate of 28%, but you can deduct the interest you pay on your loan from your stock income before calculating your tax bill.

a. Calculate your net after-tax return on these positions.

b. What would your after-tax return have been if you had never borrowed money and had invested just $40,000 in GoFast stock?