Frank is lending $1000 to Sara for two years. Frank and Sara agree that Frank should...

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Frank is lending $1000 to Sara for two years. Frank and Sara agree that Frank should earn a 2% real return per year. The CPI

business economics

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Answer 1

Answer #1

infaltion in year 1 = (1.1 - 1) / 1 * 100 = 10%

infaltion in year 2 = (1.21 - 1.1) / 1.1 * 100 = 10%

Nominal interest rate = Real interest rate + inflation = 2% + 10% = 12%

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Answer 2

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