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Frank is lending $1,000 to Sarah for two years. Frank and Sarah agree that Frank should earn a real return of 3 percent per year. Instructions: Enter your responses as whole numbers. a. The CPI (times 100) is 100 at the time that Frank makes the loan. It is expected to be 111 in one year and 123.2 in two years. What nominal rate of interest should Frank charge Sarah? The nominal rate of interest charged should be b. Suppose Frank and Sarah are unsure about what the CPI will be in two years. How should Frank index Sarah's annual repayments to ensure that he gets an annual 3 percent rate of return? Frank should charge Sarah %. ✓ (Click to select) e inflation rate. equal to more than less than

Frank is lending $1,000 to Sarah for two years. Frank and Sarah agree that Frank should earn a real return of 3 percent per year. Instructions: Enter your responses as whole numbers. a. The CPI (times 100) is 100 at the time that Frank makes the loan. It is expected to be 111 in one year and 123.2 in two years. What nominal rate of interest should Frank charge Sarah? The nominal rate of interest charged should be b. Suppose Frank and Sarah are unsure about what the CPI will be in two years. How should Frank index Sarah's annual repayments to ensure that he gets an annual 3 percent rate of return? Frank should charge Sarah %. ✓ (Click to select) e inflation rate. equal to more than less than

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter22: Inflation
Section: Chapter Questions
Problem 34P: The total price of purchasing a basket of goods in the United Kingdom over four years is: year...
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Frank is lending $1,000 to Sarah for two years. Frank and Sarah agree that Frank should earn a real return of 3 percent per year. Instructions: Enter your responses as whole numbers. a. The CPI (times 100) is 100 at the time that Frank makes the loan. It is expected to be 111 in one year and 123.2 in two years. What nominal rate of interest should Frank charge Sarah? The nominal rate of interest charged should be b. Suppose Frank and Sarah are unsure about what the CPI will be in two years. How should Frank index Sarah's annual repayments to ensure that he gets an annual 3 percent rate of return? Frank should charge Sarah %. ✓ (Click to select) e inflation rate. equal to more than less than
Transcribed Image Text:Frank is lending $1,000 to Sarah for two years. Frank and Sarah agree that Frank should earn a real return of 3 percent per year. Instructions: Enter your responses as whole numbers. a. The CPI (times 100) is 100 at the time that Frank makes the loan. It is expected to be 111 in one year and 123.2 in two years. What nominal rate of interest should Frank charge Sarah? The nominal rate of interest charged should be b. Suppose Frank and Sarah are unsure about what the CPI will be in two years. How should Frank index Sarah's annual repayments to ensure that he gets an annual 3 percent rate of return? Frank should charge Sarah %. ✓ (Click to select) e inflation rate. equal to more than less than
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