Question 2 Imagine a loan contract with a nominal interest rate of 17 percent. The expected inflation at the time of loan origin was 8 percent, but the actual inflation is realized as 6 percent. a) What is the ex-ante real interest rate for this loan contract? b) What is the ex-post real interest rate for this loan contract? c) Who benefited from the realized inflation; the lender or the borrower? Why?

Question 2 Imagine a loan contract with a nominal interest rate of 17 percent. The expected inflation at the time of loan origin was 8 percent, but the actual inflation is realized as 6 percent. a) What is the ex-ante real interest rate for this loan contract? b) What is the ex-post real interest rate for this loan contract? c) Who benefited from the realized inflation; the lender or the borrower? Why?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

3. An economist has predicted that for the next 5 years, the U.S. will have a 2.5% annual inflation rate, followed by 5 years at a 3.5% inflation rate. This is equivalent to what average price change per year for the entire 10-year period?
Consider borrowers and lenders who agree to loans with fixed nominal interest rate- If inflation is lower than what the borrowers and lenders expected, then who benefits from higher real interest rates? A) Only the borrowers benefit. B) Only the lenders benefit. OC) Both borrowers and lenders benefit. D) Neither borrowers nor lenders benefit.
Makayla bought a $1,000, 5-year inflation - indexed bond that had a real interest rate of 5.10% when the CPI was 248.615. A year later, the CPI decreased to 219.313. What amount of interest (rounded to the nearest cent) will she receive? a. $ 57.81 b. $51.00 c. $44.99 d. $ 27.10
If the nominal rate on a loan is 7.0% and annual inflation is 3.0%, what is the real interest rate for that loan? 3.0% 4.0% 10.0% Not enough information.
A. Find the real value of your 40,000 salary for each of the next three year's. year1? year2? year3? b. If you have a cola in your contract, and the inflation rate is 5 percent, what is the real value of your salary for each year? year1? year2? year3?
Which of the following describes the interest rate on an investment after calculating the impact of inflation?O NominalO RealO FinancialO Profit
Assume you make $140,000 a year. The rate of inflation in the last year was 15%. What would your salary need to be in order to compensate for inflation? Question 28 options: a) $161,000 b) $169,000 c) $155,000 d) $145,000
Sally worked hard all year and put her savings into a mutual fund that paid a nominal interest rate of 4 percent a year. During the year, the CPI increased from 185 to 190. What was the real interest rate that Sally earned? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Give explanation of the correct option and explanation of the incorrect options. Hand written solutions are strictly prohibited.