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What is the real rate of interest on the loan

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Reference no: EM131877014

Suppose you borrow $1,000 of principal that must be repaid at the end of two years, along with interest of 4 percent a year. If the annual inflation rate turns out to be 8 percent,

(a) What is the real rate of interest on the loan?

Instructions: Enter your response rounded to the nearest whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.

Percent

(b) What is the real value of the principal repayment?

Instructions: Enter your response rounded to two decimal places.$

(c) Who loses, the debtor or the creditor?

Debtor

Creditor

Neither

 

Reference no: EM131877014

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