Richer as interest rates throughout the economy fall

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Suppose you loan $5,000 to a friend to help him start a new restaurant business. Your friend signs a promissory note at a simple fixed interest rate of 5% per year. This note requires repayment in one lump sum five years from the date of the loan. One year after making this loan, you notice that interest rates throughout the economy are lower than they were when you made the loan. Explain why you become richer as interest rates throughout the economy fall.

Reference no: EM131009690

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