1. Suppose you take out a loan for school this year for $11000. The bank expects that the rate of inflation for next year will equal 5%.You and the bank agree that in one year's time, you will pay back the full amount at an interest rate of 8%. Next year though, there is a sudden rise in inflation, causing inflation to equal 10%. Based upon this information, answer the following questions.

a. How much will you pay back in one year, assuming simple interest?

b. What is the numerical value for the anticipated rate of inflation?

c. What is the numerical value for the unanticipated rate of inflation?

d. What is the numerical value for the real rate of interest?

e. What is the numerical value for the nominal rate of interest?

f. Who wins and who loses from this loan?