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(solution) i just have the one blank on the bottom that i can't get right.


i just have the one blank on the bottom that i can't get right. do you think you could help?


Frank is lending $1,000 to Sarah for two years. Frank and Sarah

 

agree that Frank should earn a 2 percent real return per year.

 

Instructions: Enter your responses as integer values.

 

a. The CPI (times 100) is 100 at the time that Frank makes the loan.

 

It is expected to be 110 in one year and 121 in two years. What

 

nominal rate of interest should Frank charge Sarah?

 

The nominal rate of interest charged should be 12.2%.

 

b. Suppose Frank and Sarah are unsure what the CPI will be in two

 

years. How should Frank index Sarah?s annual repayments to ensure

 

that he gets an annual 2 percent real rate of return.

 

Frank should charge Sarah

 

thanequal to the inflation rate. % (Click to select)less thanmore

 


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Sep 13, 2020

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