These countries must borrow money, and at the same time want investors to buy the bonds and issue indexed bonds. What is Indexation? How does that mitigate Inflation Risk in the fixed income securities market? What are the potential challenges? Explain, with your own assumed example?

Problem 7
Inflation 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 years is 2.5% per 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?