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What will the nominal interest rate be on the loan

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Question: Assume that I arrange a $100 loan from you at 10 percent real interest, and we both expect 20 percent inflation over the next year. What will the nominal interest rate be on that loan? Now assume that you lend me $100 to be repaid in two years and we both expect zero inflation in the first year and 20 percent in the second. Is the amount you will repay me the same as if we both expect 10 percent inflation in each year. If the amounts differ, why?

Reference no: EM131685814

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