1/ Imagine that your friend lends you $100 and that the loan is repayable in one year.

a. If you are to pay her $108 in one year's time, determine the principal, interest payment, and the nominal interest rate.

b. If you are to pay 10% nominal interest on this loan, how much do you have to pay her at maturity?

c. In the case of part (b), if the inflation rate is 6% per year, how much is the real interest rate?

d. If the inflation rate is higher than that of in part (c), who is benefiting and who is losing in terms of purchasing power?