What is the real rate of return from the account

Reference no: EM13690184

1) Suppose that the price level rises by 5% in a year. You have $1000 in a savings account at 3% interest rate. What is the real rate of return from the account?

2) Consider the following four scenarios: (i) interest rate = 9%, expected inflation rate = 7% (ii) interest rate = 4%, expected inflation rate = 1% (iii) interest rate = 13%, inflation rate = 15% (iv) interest rate = 25%, inflation rate = 50%. Under which scenario would you prefer to be a lender and why? Under which scenario would you prefer to be a borrower and why? (10 pts)

Reference no: EM13690184

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