You borrowed $1500 from a friend last year and promised to pay him at 5.5% annual...

You borrowed $1500 from a friend last year and promised to pay him at 5.5% annual real interest rate. Over the year, inflation turns out to be 1.5%. The amount of money you owe your friend this year is (please don't enter the $-sign in your answer):

Solutions

Expert Solution

Nominal interest rate = Real interest rate + inflation rate.

So, if I need to pay 5.5% real interest rate and the inflation is 1.5%, I will have to pay 5.5% + 1.5% = 7% nominal interest rate.

7% of $1,500 = 7/100 * $1,500 = 7 * $15 = $105.

So, I will have to pay $1,500 + $150 = $1,650 to my friend.

Rahul Sunny answered 2 years ago

Next > < Previous

Related Solutions

Q-1 Rahim borrowed Rs. 100,000 from Zubair and promised him to pay the amount after 3...

Q-1 Rahim borrowed Rs. 100,000 from Zubair and promised him to pay the amount after 3 months on 01-December-2020. Identify what kind of a negotiable instrument will be issued by which party to whom; further narrate the essentials of instrument you identified. Also make a specimen of the instrument.

Today, you borrowed $20,000 at 5.5% with quarterly compounding. You have agreed to pay off the...

Today, you borrowed $20,000 at 5.5% with quarterly compounding. You have agreed to pay off the loan over 5 years by making equal weekly payments. If you were solving for your unknown weekly payment amount using the annuity present value equation, what interest rate would you use? (Hint: You don't actually need to solve for your unknown payment amount.)

Steven Garcia borrowed some money from his friend and promisedto repay him $1,210, $1,300, $1,470,...

Steven Garcia borrowed some money from his friend and promised to repay him $1,210, $1,300, $1,470, $1,630, and $1,630 over the next five years. If the friend normally discounts investment cash flows at 6.5 percent annually, how much did Steven borrow?

Your friend wants to borrow $2,500 and pay you back the $2,500 in a year from...

Your friend wants to borrow $2,500 and pay you back the $2,500 in a year from now. You agree to the loan but tell your friend he must pay you $500 up-front. a) What is the annual effffective rate of interest you have charged your friend? b) Before your friend agrees to the deal, he gets a letter in the mail saying he qualifified for a a credit card from McMaster Bank with a $2,500 limit which charges an annual...

Anne purchased an annuity from an insurance company that promised to pay her $35,000 per year...

Anne purchased an annuity from an insurance company that promised to pay her $35,000 per year for the next ten years. Anne paid $236,250 for the annuity, and in exchange she will receive $350,000 over the term of the annuity. a. How much of the first $35,000 payment should Anne include in gross income?(Do not round intermediate calculations.) b.How much income will Anne recognize over the term of the annuity?

Your cousin borrowed $3,000 from you. Assuming that you had agreed to charge him 12%, and...

Your cousin borrowed $3,000 from you. Assuming that you had agreed to charge him 12%, and assuming that he wishes to make 5 equal annual payments beginning in one year, how much would your brother-in-law have to pay you annually in order to pay off the debt? Group of answer choices a. $ 941.89 b. $1,322.33 c. $3,002.56 d. $1,200.00 $ 832.23

You have borrowed $20 from a friend. He has forgotten about it, and you are certain...

You have borrowed $20 from a friend. He has forgotten about it, and you are certain he will never remember. In addition, your friend is well-off and will never miss it. To you, $20 means a lot. Describe what considerations the Kantian person would need to have in deciding whether to repay the debt.

Compare the proceeds from a 2-year $100,000 investment at 5.5%, annual compounding, with that from investing...

Compare the proceeds from a 2-year $100,000 investment at 5.5%, annual compounding, with that from investing for 1 year at 5.5% and rolling over at 5.5% for the second year. Compare the proceeds from a 2-week (money market) $100,000 investment at 5.5%, with that from investing for 1 week at 5.5% and rolling over at 5.5% for the second week. Please show solve by hand

You have borrowed $1,554 from your parents. You will pay them back what your borrowed plus...

You have borrowed $1,554 from your parents. You will pay them back what your borrowed plus $263 in 3 years. What is the implied interest rate? Answer as a percent

Your friend offers to pay you an annuity of $8,500 at the end of each year...

Your friend offers to pay you an annuity of $8,500 at the end of each year for 3 years in return for cash today. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?

Subjects