Dean Borrows $400 from Tim

question 244

Multiple Choice

Dean borrows $400 from Tim. Tim wants to make a 10% real return on his money, so they both agree on a 10% interest rate paid next year. Dean and Tim did not anticipate any inflation, yet the actual inflation turned out to be 4% next year. In this case,

• A) Tim is better off.
• B) Dean will pay $56 a year from now on.
• C) Dean is better off.
• D) Tim will receive more than 10% of real rate of return a year from now.