Porter makes three-year loans that include inflation protection. The annual interest rate compounded continuously that must be
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Question:
Porter makes three-year loans that include inflation protection. The annual interest rate compounded continuously that must be paid is 3.2% plus the rate of inflation.
US. government borrows 100,000 for three years from Porter, actual annual inflation rate during the first year was 2.4% compounded continuously. The actual annual inflation rates for the second and third years respectively was 2.8% and 4.2% compounded continuously.
The U.S. government is considered a risk free borrower, which means there is no chance of default.
Calculate the amount that the U.S. government will owe Porter at the end of three years.
- 120,560
- 120,740
- 120,925
- 121,125
- 122,250
Related Book For
Principles of Corporate Finance
ISBN: 978-0072869460
7th edition
Authors: Richard A. Brealey, Stewart C. Myers
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