Suppose you borrow $1,000 of principal that must be repaid at the end of two years, along with interest of 5 percent a year. If the annual inflation rate turns out to be 10 percent, Hint: Future value = Present value x (1 + Growth in prices), where t is the number of years evaluated. Real value of loan repayment Amount of loan x (1 + Real interest rate) Instructions: Round your responses to the nearest whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. a. What is the real rate of interest on the loan? 1% b. What is the real value of the principal repayment? c. Who loses, the debtor or the creditor? O Debtor O Creditor
Suppose you borrow $1,000 of principal that must be repaid at the end of two years, along with interest of 5 percent a year. If the annual inflation rate turns out to be 10 percent, Hint: Future value = Present value x (1 + Growth in prices), where t is the number of years evaluated. Real value of loan repayment Amount of loan x (1 + Real interest rate) Instructions: Round your responses to the nearest whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. a. What is the real rate of interest on the loan? 1% b. What is the real value of the principal repayment? c. Who loses, the debtor or the creditor? O Debtor O Creditor
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Suppose you borrow $1,000 of principal that must be repaid t the end of two years, along with interest of 5 percent a year. If the
annual inflation rate turns out to be 10 percent,
Hint: Future value = Present value x (1 + Growth in prices), where t is the number of years evaluated.
Real value of loan repayment Amount of loan x (1 + Real interest rate)
Instructions: Round your responses to the nearest whole number. If you are entering any negative numbers be sure to include a
negative sign (-) in front of those numbers.
a. What is the real rate of interest on the loan?
%
b. What is the real value of the principal repayment?
c. Who loses, the debtor or the creditor?
Debtor
O Creditor](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe829435b-33f8-4c08-a416-c102e096bafe%2F686a3d4f-873d-4f10-a15f-a0e33ee4b395%2Fcd5ioxv_processed.png&w=3840&q=75)
Transcribed Image Text:Suppose you borrow $1,000 of principal that must be repaid t the end of two years, along with interest of 5 percent a year. If the
annual inflation rate turns out to be 10 percent,
Hint: Future value = Present value x (1 + Growth in prices), where t is the number of years evaluated.
Real value of loan repayment Amount of loan x (1 + Real interest rate)
Instructions: Round your responses to the nearest whole number. If you are entering any negative numbers be sure to include a
negative sign (-) in front of those numbers.
a. What is the real rate of interest on the loan?
%
b. What is the real value of the principal repayment?
c. Who loses, the debtor or the creditor?
Debtor
O Creditor
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