Assume that the real interest rate is 2%, and the expected inflation rate is 4%.
A) What is the nominal interest rate (before default & maturity premiums) that will be built into every loan contract?
B) Assume that the actual, future, inflation rate turns out to be 5%.
* Who benefits, and who losses, from inflation in this case?
* How will the realized real interest rate differ from the expected real interest rate?