Loretta Agrees to Lend Ted $500,000 to Buy Computers for His

question 25

Essay

Loretta agrees to lend Ted $500,000 to buy computers for his consulting firm.They agree to a nominal interest rate of 8%.Both expect the inflation rate to be 2%.
(a)Calculate the expected real interest rate.
(b)If inflation turns out to be 3% over the life of the loan,what is the real interest rate? Who gains from unexpectedly high inflation,Loretta or Ted?
(c)If inflation turns out to be 1% over the life of the loan,what is the real interest rate? Who gains from unexpectedly low inflation,Loretta or Ted?

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Radius

The distance from the center to the boundary of a circle, sphere, or other rounded geometric figure.

Surface Area

The total area of the outer surface of a three-dimensional object.

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The initial line or command in a sequence of code that is executed in a program or script.