to two decimal places. (a). The CPI (times 100) is 100 at the time that Frank makes the loan. It is expected to be $111 in one year and $128 in two years. What nominal rate of interest should Aidar charge Medet? The nominal rate of interest

to two decimal places. (a). The CPI (times 100) is 100 at the time that Frank makes the loan. It is expected to be $111 in one year and $128 in two years. What nominal rate of interest should Aidar charge Medet? The nominal rate of interest

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter24: Measuring The Cost Of Living

Section: Chapter Questions

Problem 5QCMC

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Question

Assume Medet decided to buy a car. His friend
Aidar has lent him $10,000 USD. Medet and Aidar
agree that Aidar should earn a real return of $5
percent per year. Enter your responses rounded
to two decimal places. (a). The CPI (times 100) is
100 at the time that Frank makes the loan. It is
expected to be $111 in one year and $128 in two
years. What nominal rate of interest should Aidar
charge Medet? The nominal rate of interest
charged should be
% in year 1. The
nominal rate of interest charged should be
% in year 2. (b). Suppose Aidar and
Medet are unsure about what the CPI will be in
one year. How should Aidar and Medet's annual
repayments ensure that he gets an annual $5
percent rate of return? Aidar should charge
Medet
% more than the inflation
rate.

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