Wimpy is full of economic lessons. You are all too young to remember Wimpy, but his behavior back then reflects a way of life for many Americans today. Wimpy wants to borrow money to buy a hamburger today and promises to pay you back the future. Because of inflation, $5 today will be worth less when you get it back in the future. So, to make it worthwhile, we want a promise to get more back in the future -- at least enough more to match inflation. Plus, we would want even more back to warrant taking the risk that we might not be paid back at all! (Default or counterparty risk), and, even more for giving up the opportunity to use the money ourselves for something else. Let's say you're willing to loan Wimpy $7 for two years. To calculate how much you want Wimpy to pay you back, you must determine the "nominal," or total interest rate you will charge. That would include 1) how much interest you would want to cover inflation, plus 2) additional [real] interest would you want above the inflation rate to compensate you for default risk and opportunity cost (what you give up by not using the money yourself! Just for reference, a 2-year bank CD pays about 4.25%, 2-year U.S. Treasury rate is about 4.4% (just o.78% a year ago) and a used car loan for two years would cost you around 7.0% APR if you have decent credit. But, Wimpy presents considerably more risk! To earn credit: 1) Determine the nominal, or total, interest rate you will charge Wimpy. be sure to explain how you arrived at the rate. Then, 2) determine what amount (lump sum) Wimpy will pay you back in two years. Show your calculations. Use annual compounding.