Calculate the inflation adjustment for a 5-year loan

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Reference no: EM13304842

You have been assigned to estimate the interest rates that your company may have to pay when borrowing money in the near future. The following information is available.

kPR = 2%
MR = .1% for a 1 year loan increasing by .1% for each additional year
LR = .05% for a 1 year loan increasing by .05% for each additional year
DR = 0 for a 1 year loan, .2% for a 2 year loan, increasing.1% for each additional year
Expected Inflation Rates
Year 1 = 7%
Year 2 = 5%
Year 3 and thereafter = 3%

a. Calculate the inflation adjustment (INFL) for a 5-year loan.
b. Calculate the appropriate interest rate for a 5-year loan.

Reference no: EM13304842

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