Indexation Strategy: Your bank has stated that it pays 3% interest, annually compounded, for a 7-year certificate of deposit. You have decided to…

Indexation Strategy: Your bank has stated that it pays 3% interest, annually compounded, for a 7-year certificate of deposit. You have decided to invest $ 10,000 for 7 years. If the average rate of inflation during the 7 yeas is 2.5%/year during the 7 years, and you anticipate being in the 20% tax bracket for the first 3 years, and 40% for the next 4 years, what is your real, after tax return? Should you make the deposit?