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Suppose you borrow $1,000 of principal that must be repaid at the end of two years, along with interest of 5 percent a year. If the annual inflation rate turns out to be 10 percent,

(a) What is the real rate of interest on the loan?

For this I got -5%.

(b) What is the real value of the principal repayment?


  • math -

    (b) Round to nearest two decimal places.

  • math -

    1000 * .90 * .90 = ?

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