Antalya Company borrows 1,000,000 Turkish lire (TL) on January 1, Year 1, at an annual interest rate of 60 percent by signing a two-year note payable. During Year 1, the Turkish inflation index changed from 250 at January 1 to 387.5 at December 31.
Required:
Related to this note payable, determine the following amounts for Antalya Company for Year 1:
a. Nominal interest expense.
b. Purchasing power gain on the borrowing.
c. Real interest expense (nominal interest expense less purchasing power gain). What is the real rate of interest paid by Antalya Company in Year 1 on its note payable?