Ferrari & Macintosh Corporation issues a 30-year bond with a fixed coupon rate of 3%. Suppose, that the inflation rate over the period is 7%. In 30 years, Ferrari & Macintosh (in real terms will suffer, in real terms will benefit, or in real terms will be financially unaffected) because:

A. Inflation increases the real value of the coupon payments and the principle

B. Inflation decreases the real value of the coupon payments and the principle

C. Inflation decreases the real value of the coupon payments by the same amount as it increases the value of the principle payment

D. Inflation increases the real value of the coupon payments, whereas the value of the principle does not change

Ceteris paribus, which of the following follows from the situation described in the previous question?

A. Both borrowers and lenders are worse off because the coupon rate on a bond and the face value of a bond do not change

B. Generally, the lenders benefit from the fact that neither the coupon rate on a bond nor the face value of a bond change over the life of the bond

C. Generally, borrowers benefit from the fact that neither the coupon rate on a bond nor the face value of a bond change over the life of the bond.

D. Both borrowers and lenders are better off because the coupon rate on a bond and the face value of a bond do not change