Determine the annual inflation-free interest rate for bank

Reference no: EM13209752

suppose that you just purchased a used car worth $12000 in today's dollars.assume also that to finance the purchase you borrowed $10000 from a local bank 9% compounded monthly over two years. the bank calculated your monthly payment at $456.85 Assume that average general inflation will run at 0.5% per month over the next two years.

a) determine the annual inflation-free interest rate (i') for the bank

b) what equal monthly payment in terms of constant dollar over the next two years are equivalent to the series of actual payments to be made over the life of the loan?

Reference no: EM13209752

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