A lender and a borrower signed a contract for a $1,000 loan for one year. The...
A lender and a borrower signed a contract for a $1,000 loan for one year. The lender asked the borrower to pay 3% interest. Inflation occurred and prices rose by 2% over the next year. At the end of the year, the borrower repaid $1,030 (principal + interest). What is the amount worth in real terms (i.e., after inflation)?
|
$1,060.90. |
|
|
$1,050.60. |
|
|
$1,029.41. |
|
|
$1,009.80. |
Homework Answers
| Amount worth in real terms = Amount received/(1+ Inflation rate) |
| Amount worth in real terms = 1030/1.02 = $1,009.80. |
| Option D $1,009.80 is correct |
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