- What is the real interest rate if the nominal interest rate is 12% and inflation is expected to produce a 10% increase (for the cost of assets) over the same period? Describe whether the result is good for borrowers, lenders, or both. (Show all work/calculations/formulas.)
2. If Wilma borrows $5,000 from her brother (at 5% interest per year) and the loan matures in 10 years, how much will she have to pay annually to pay the loan off in 10 years? How much will she have to pay annually to pay the loan off in four years? (Show all work/calculations/formulas. You may use a financial calculator, but must identify your methodology.)
3. What are the main variables that affect the demand curve for bonds, and how do they correlate to the downward or upward shift of the demand curve?
Question 1Real interest rate= Nominal interest rate-inflationReal interest rate=12%-10%= 2%High inflation is not good for both lenders & borrowers as it results in high nominal interest rate…