Assume you lend $10.000 for a five (5) year period. The current the real rate at the time you lend the money is 2.3%. You charge no risk premium on the loan. 

At the end of the 5-years loan period you receive back your $10,000 and then decide to determine your rate of return. You collect the following information for your calculation. 

Part 1 Using the Fisher Equation, what is your expected required rate of return on the loan? 

Part 2 Using the Fisher Equation, what is your realized required rate of return on the loan? 

Transcribed Image Text:

Expected Actual Annual Inflation Year Annual Inflation 1 1.10% 0.50% 2.10% 2.03% 3 2.50% 1.90% 4 1.80% 3.21% 2.15% 2.24% Expected Actual Annual Inflation Year Annual Inflation 1 1.10% 0.50% 2.10% 2.03% 3 2.50% 1.90% 4 1.80% 3.21% 2.15% 2.24%

Answer rating: 100% (QA)

We have following fisher equation NR 1RR x 1IR STAY H KOREK NR is ... View the full answer