Question

ssume you lend $10.000 for a five (5) year period. The current the real rate at the time you lend the money is 2.3%. You charge no
risk premium on the loan.
At the end of the 5-years loan period you receive back your $10,000 and then decide to determine your rate of return. You collect the following information for your calculation.

Year	Expected Annual Inflation	Actual Annual Inflation
1	1.10%	0.50%
2	2.10%	2.03%
3	2.50%	1.90%
4	1.80%	3.21%
5	2.15%	2.24%

1)Using the Fisher Equation, what is your expected required rate of return on the loan? Show clearly all work, carrying all calculations out to four (4) decimal places. Highlight in bold your answer.

2) Using the Fisher Equation, what is your realized required rate of return on the loan? Show clearly all work, carrying all calculations out to four (4) decimal places. Highlight in bold your answer.

Thank you.

Answer 1