math
posted by jay .
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?
?
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I have worked and reworked this problem, but I cannot seem to figure it out. Can anyone help?