Suppose you borrow $600 of principal that must be repaid at the end of two years, along with interest of 5 percent a year. If the annual inflation rate turns out to be 10 percent,
(a) What is the real rate of interest on the loan?
Instructions: Enter your response to the nearest whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.
(b) What is the real value of the principal repayment?
Instructions: Enter your response to the nearest two decimal places.
(c) Who loses, (A) the debtor or (B) the creditor?