You buy a one-year debt security on December 31, 2016, for $10,000, which will pay you a nominal interest rate of 5%. From December 31, 2016, to December 31, 2017, the inflation rate is 2%. You have a tax rate of 35%. Answer the following and show your calculations.

e) How much real interest income do you earn?

f) How much is your after-tax real interest income?

g) What percent of your nominal interest income goes to:

(1) you, in the form of after-tax real interest income

(2) the government, in the form of taxes

(3) inflation, in the form of lost principal value