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):

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

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