Suppose you take out a $109,000, 20-year mortgage loan to buy a condo. The interest rate on the loan is 6%. To keep things simple, we will assume you make payments on the loan annually at the end of each year.

g. If the inflation rate is 2%, what is the real value of the last (year-end) payment?

h. Now assume the inflation rate is 8% and the real interest rate on the loan is unchanged. What must be the new nominal interest rate?

i-1. Recompute the amortization table

i-2. What is the real value of the first (year-end) payment in this high-inflation scenario?

j. What is the real value of the last payment in this high-inflation scenario?