Assume that the real interest rate

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Reference no: EM131079396

Assume that the real interest rate is 2%, and the expected inflation rate is 4%.

A) What is the nominal interest rate (before default & maturity premiums) that will be built into every loan contract?

B) Assume that the actual, future, inflation rate turns out to be 5%.

*Who benefits, and who losses, from inflation in this case?
*How will the realized real interest rate differ from the expected real interest rate?

Reference no: EM131079396

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