I am now confused so please figure this questions out for me

The real interest rate is currently 2 % , and is expected to remain at that level for the next two years . In contrast , the inflation premium is expected to decrease from an annual rate of 7/ during the next year , to an annual rate of 3/ during the second year A . What is the EXACT ( 3 decimal places ) annual interest rate on a two - year loan ? B . Assume that a fixed interest rate loan is issued at the rate you calculated in Part A . If the annual inflation rate turns out to be 7% over the entire two - year period ( briefly explain each answer ) s purchasing power transferred from the borrower to the lender , or from the lender to the borrower ? is the realized real interest rate on this loan higher or lower than the expected real rate