In each of the following examples, identify whether the person or institution will be penalized by inflation
Question:
In each of the following examples, identify whether the person or institution will be penalized by inflation and, if so, why.
a. Mosie borrows $5,000 for her college expenses at an interest rate of 4 percent to be paid off over 5 years, during which time the inflation rate averages 6 percent
b. Oscar invests $3,000 in securities that pay 5.3 percent annually for 10 years, and the inflation rate during the time averages 6.4 percent
c. The Lilyton National Bank commits to $10 million in 15-year mortgages at an average mortgage rate of 4.5 percent. The inflation rate averages 6 percent over this 15-year period.
d. Barney bought a house in 2006 for $100,000 that he is now selling for $200,000. During this time the inflation rate has averaged 3 percent.
Step by Step Answer:
Economics Theory And Practice
ISBN: 9781118949733
11th Edition
Authors: Patrick J. Welch, Gerry F. Welch