Tom Ward put $10,000 in a 5-year certificate of deposit that pays 12% interest per year. At

Question:

Tom Ward put $10,000 in a 5-year certificate of deposit that pays 12% interest per year. At the end of the 5 years the certificate will mature and he will receive his $10,000 back. Tom has substantial income from other sources and estimates that his incremental income tax rate is 42%. If the inflation rate is 7% per year, find his

(a) Before-tax rate of return, ignoring inflation

(b) After-tax rate of return, ignoring inflation