Suppose you borrow $1,000 of principal that must be repaid at the end of two years, along with interest of 5 percent a year. If the annual inflation rate turns out to be 10 percent, Hint: Future value = Present value x (1 + Growth in prices), where t is the number of years evaluated. Real value of loan repayment Amount of loan x (1 + Real interest rate) Instructions: Round your responses to the nearest whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. a. What is the real rate of interest on the loan? % b. What is the real value of the principal repayment? $ c. Who loses, the debtor or the creditor? O Debtor O Creditor Prev 23 of 24 H Next

Suppose you borrow $1,000 of principol that must be repald at the end of two years, atong with interest of 5 percent a year if the annual inflation rate turns out to be 10 percent. Hint Future value = Present value (1+Growthinprices)t. where t is the number of years ovaluatod Real value of loan repayment = Amount of loan (1+Realinterestrate)t Instructions: Round your responses to the nearest whole number. If you are entering any negative numbers be sure to include a negative sign () in front of those numbers. a. What is the real rate of interest on the loan? b. What is the real value of the principal repayment? c. Who loses, the debtor or the creditor? Debtor Creditor