Kevin receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 4.5% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate.
The government taxes nominal interest income at a rate of 10%. The following table shows two scenarios: a low-inflation scenario & a high-inflation scenario.

Given the real interest rate of 4.5% per year find the nominal interest rate of Kevin's bonds, the after tax nominal interest & the after tax real interest rate under each inflation scena

Question

Kevin receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 4.5% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate.
The government taxes nominal interest income at a rate of 10%. The following table shows two scenarios: a low-inflation scenario & a high-inflation scenario.

Given the real interest rate of 4.5% per year find the nominal interest rate of Kevin's bonds, the after tax nominal interest & the after tax real interest rate under each inflation scena

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