You have been assigned to estimate the interest rates that your company may have to pay when borrowing money in the near future. The following information is available:

 KPR = 2%

MR = .1% for a 1 year loan increasing by .1% for each additional year

LR = .05% for a 1 year loan increasing by .05% for each additional year

DR = 0 for a 1 year loan, .2% for a 2 year loan, increasing by .1% for each additional year

 Expected inflation Rates:

Year 1 = 7%

Year 2 = 5%

Year 3 and thereafter = 3%

 

1. Calculate the inflation adjustment for a 5 year loan

2. Calculate the appropriate interest rate for a 5 year loan

Answer rating: 100% (QA)

To calculate the inflation adjustment for a 5year loan and then determine the appropriate interest r... View the full answer