Do the creditors gain or lose from the transaction

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Inflation affects creditors and debtors. Suppose the Canadian debtors borrowed $100 from the Canadian creditors on December 31, 1992 and promised to pay back $105 on December 31, 1993. This is equivalent to paying back a nominal interest rate of 5%.

a) Find the real interest rate, which is defined as real interest rate = nominal interest rate - inflation rate.

b) Do the creditors gain or lose from this transaction? Explain

Reference no: EM13237586

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