Suppose you take out a loan at your local bank and the nominal interest rate is 12%.

Question:

Suppose you take out a loan at your local bank and the nominal interest rate is 12%. The bank expects the inflation rate to be 4% during the life of your loan.

a) What is the bank’s ex ante real interest rate?

b) What is the bank’s ex post real interest rate if the inflation rate happens to be larger than 4% during the life of this loan?

c) As a borrower, would you benefit from a higher or lower actual inflation rate?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Macroeconomics Policy And Practice

ISBN: 978-0133424317

2nd Edition

Authors: Frederic Mishkin

See More Books

Question Posted: Feb 17, 2024 11:01 PM

See More Questions

1. In the classical model, it is thought that the long-run: A. and short-run aggregate supply curves are both upward sloping. B. aggregate supply curve is vertical and the short-run aggregate supply...
Suppose you negotiate a one-year loan with a principal of $1000 and the nominal interest rate is currently 7%. You expect the inflation rate to be 3% over the next year. When you repay the principal...
Please do the full calculation through the financial calculator formula as per the Australian standards Question 1 (Total marks for this question = 6 marks) Suppose you take out a loan of $10,000,...
Jake needed a summer job and was lucky enough to land a position as a ticket collector at a local amusement park. On his first day, he was assigned to work alongside Tim who had worked at the park...
Bob Mark is the executor of his parent's estate that is being divided equally among his two brothers, Tom and Mike, and himself. The estate consist of cash and marketable securities worth $4.2...
Years 1 2 3 Future Value 1,752 1,534 2,139 5 2,204 Above is a stream of payments that you will receive at the end of the respective year. The present value of those payments (including the missing...
Calculating Interest Using the Simple Interest Formula. You just bought a used car for $3,500 from your cousin. He agreed to let you make payments for 3 years with simple interest at 7 percent. How...
A commercial fisherman notices the following relationship between hours spent fishing and the quantity of fish caught: Hours Quantity of Fish (in pounds) 0 hours ......0 lb 1.........10 2.........18...
Midlands Inc. had a bad year in 2019. For the first time in its history. it operated at a loss. The company's income statement showed the following results from selling 75,000 units of product: net...
Go to the St. Louis Federal Reserve FRED database, and find the most recent values for Gross Domestic Product (GDP) and Gross National Product (GNP). a) Calculate net factor income using the most...
Refer to the previous exercise for data and assume that three million unemployed individuals become discouraged and decide not to look for a job anymore. Calculate the new unemployment rate for...
On January 1, 2011, Medical Transport Company's accumulated postretirement benefit obligation was $25 million. At the end of 2011, retiree benefits paid were $3 million. Service cost for 2011 is $7...
What is the difference between corporate and clinical? How do they differ? Can they both have the same outcome? Include a reference list that supports your stance of no fewer than 3 scholarly...
How do we attain the desire for the freedom to purse one's passions, the desire for economic security and well-being, the desire for hope and progress in one's life utilizing higher-order thinking
Instructions FNCE 625 - Investment Analysis and Management Group Project - Case Study Guideline Introduction: In this group assignment, each team will collaboratively make a comprehensive report and...
21) The EOQ model is solved using calculus but the key intuition is that relevant total costs are minimized when relevant ordering costs equal relevant carrying costs. 22) Safety stock is used as a...
In the long-term, what do you recommend as overall policy in order to reduce or avoid the kinds of PPE shortages that occurred during the different waves of the COVID virus? In simple terms, how...
Determine whether the series is convergent or divergent by expressing Sn as a telescoping sum (as in Example 7). If it is convergent, find its sum. a. b. c. -i nn + 3)
The bookkeeper for Riley, Inc., made the following errors: a. A cash purchase of supplies of $357 was recorded as a debit to Supplies for $375 and a credit to Cash of $375. b. A cash sale of $3,154...
How did off-balance-sheet items contribute to the global financial crisis in year 2007?
Describe the situation where banks were reluctant to lend to the public, which caused the economy to deteriorate.
What triggered the global financial crisis of 20072009?
thumbs up if correct A stock paying no dividends is priced at $154. Over the next 3-months you expect the stock torpeither be up 10% or down 10%. The risk-free rate is 1% per annum compounded...
Question 17 2 pts Activities between affiliated entities, such as a company and its management, must be disclosed in the financial statements of a corporation as O significant relationships O segment...
Marchetti Company, a U.S.-based importer of wines and spirits, placed an order with a French supplier for 1,000 cases of wine at a price of 200 euros per case. The total purchase price is 200,000...

Suppose you take out a loan at your local bank and the nominal interest rate is 12%.

Question:

Step by Step Answer:

Answers a Ex ante real interest rate The exante real interest rate is the nominal interest rate minu...View the full answer

Macroeconomics Policy And Practice

Students also viewed these Business questions