How much do you gain or lose by making the loan

Reference no: EM13204326

Suppose you lend $20,000 at a 7.5% interest rate to a friend for one year. At the time of the loan your expected rate of inflation is 2.5% while your friend's expected rate of inflation is 2.9%. However, by the end of that year prices have increased by only 2.6%. How much do you gain or lose by making the loan? How much does your friend gain or lose?

Reference no: EM13204326

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