How does that lower-than-expected inflation rate affect lynn

Reference no: EM13243347

Boris Borrower and Lynn Lender agree that Lynnwill lend Boris $10,000 and that Boris will repay the $10,000 withinterest in one year. They agree to a nominal interest rate of 8%,reflecting a real interest rate of 3% on the loan and a commonlyshared expected inflation rate of 5% over the next year.

a. If the inflation rate is actually 4% over thenext year, how does that lower-than-expected inflation rate affectBoris and Lynn? Who is better off?

b. If the actual inflation rate is 7% over thenext year

Reference no: EM13243347

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