Suppose you borrow $8,000 of principal that must be repaid at the end of two years, along with interest of 4 percent a year. If the annual inflation rate turns out to be 6 percent, Instructions: Enter your responses rounded to the nearest whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.
a. What is the real rate of interest on the loan?
b. What is the real value of the principal repayment?
Hint: Future value = Present value × (1 + Growth in prices)t, where t is the number of years evaluated, e. g., The real value of loan repayment = Amount of loan × (1 + Real interest rate)t
c. Who loses, the debtor or the creditor?