Suppose you borrow $1,000 of principal that must be repaid at the end of two years, along with interest of 4 percent a year. If the annual inflation rate turns out to be 8 percent,
(a) What is the real rate of interest on the loan?
Instructions: Enter your response rounded to the nearest whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.
Percent
(b) What is the real value of the principal repayment?
Instructions: Enter your response rounded to two decimal places.$
(c) Who loses, the debtor or the creditor?
Debtor
Creditor
Neither