EXERCISE 3 Inflation (25 points) PART ONE (10 points) Steve wants to borrow $1,0

Question

EXERCISE 3 Inflation (25 points) PART ONE (10 points) Steve wants to borrow $1,000 from Harry and promises to repay the borrowed money plus interest a year from now. During the course ofthe year Harry anticipates that inflation will be 15% while Steve anticipates that inflation will be 12%. Use this information to answer this series of questions ECON 1101. D621 Final Exam. Fall 2016 semester. Monday December 19,2016 Steve is willing to pay a 5% for this loan. If Harry charges Steve a nominal interest rate of 17%, will Steve borrow the money? (6 points) Steve has agreed to pay Harry $1,100 at the end of the year. If Harry loans Steve $1,000 at the beginning of the year. I finflation is l 5% for the year, what is the real interest rate that Steve will pay for this loan? (4 points) a) b)

Explanation / Answer

Yes because 17-12=5% which Steve is willing to pay

The interest rate is 10%. Inflation is 15% so the real interest rate is 10-15= - 5%

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.