Frank is lending $1,000 to Sarah for two years. Frank and Sarah agree that Frank should earn a real return of 3 percent per year. Instructions: Enter your responses as whole numbers. a. The CPI (times 100) is 100 at the time that Frank makes the loan. It is expected to be 111 in one year and 123.2 in two years. What nominal rate of interest should Frank charge Sarah? The nominal rate of interest charged should be %. b. Suppose Frank and Sarah are unsure about what the CPI will be in two years. How should Frank index Sarah's annual repayments to ensure that he gets an annual 3 percent rate of return? Frank should charge Sarah %✓ (Click to select) e inflation rate. equal to more than less than
Frank is lending $1,000 to Sarah for two years. Frank and Sarah agree that Frank should earn a real return of 3 percent per year. Instructions: Enter your responses as whole numbers. a. The CPI (times 100) is 100 at the time that Frank makes the loan. It is expected to be 111 in one year and 123.2 in two years. What nominal rate of interest should Frank charge Sarah? The nominal rate of interest charged should be %. b. Suppose Frank and Sarah are unsure about what the CPI will be in two years. How should Frank index Sarah's annual repayments to ensure that he gets an annual 3 percent rate of return? Frank should charge Sarah %✓ (Click to select) e inflation rate. equal to more than less than
Chapter17: Capital And Time
Section: Chapter Questions
Problem 17.3P
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![Frank is lending $1,000 to Sarah for two years. Frank and Sarah agree that Frank should earn a real return of 3 percent per year.
Instructions: Enter your responses as whole numbers.
a. The CPI (times 100) is 100 at the time that Frank makes the loan. It is expected to be 111 in one year and 123.2 in two years. What
nominal rate of interest should Frank charge Sarah?
The nominal rate of interest charged should be
b. Suppose Frank and Sarah are unsure about what the CPI will be in two years. How should Frank index Sarah's annual repayments to
ensure that he gets an annual 3 percent rate of return?
Frank should charge Sarah
%.
✓ (Click to select) he inflation rate.
equal to
more than
less than](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe15909a4-75a0-42bd-b693-fbda771c78b7%2Fe54d2c37-af3e-4033-8112-3050fd101aa3%2F0dd71x_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Frank is lending $1,000 to Sarah for two years. Frank and Sarah agree that Frank should earn a real return of 3 percent per year.
Instructions: Enter your responses as whole numbers.
a. The CPI (times 100) is 100 at the time that Frank makes the loan. It is expected to be 111 in one year and 123.2 in two years. What
nominal rate of interest should Frank charge Sarah?
The nominal rate of interest charged should be
b. Suppose Frank and Sarah are unsure about what the CPI will be in two years. How should Frank index Sarah's annual repayments to
ensure that he gets an annual 3 percent rate of return?
Frank should charge Sarah
%.
✓ (Click to select) he inflation rate.
equal to
more than
less than
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