A borrower and lender agree that the expected inflation rate for the next year is 3 percent.

Based on this, they enter into a loan agreement where the nominal interest rate to be charged

is 8 percent.

a. Find the ex ante real interest rate.

b. Find the ex post real interest rate if the inflation rate turns out to be 6%

c. Which party to the transaction gains when the inflation rate turns out to be 6%

d. Find the ex post real interest rate if the inflation rate turns out to be 12%