Adelaide Autos agrees to loan at an interest rate of 10.6% in AUD (Australia dollars). Inflation...

Adelaide Autos agrees to loan at an interest rate of 10.6% in AUD (Australia dollars). Inflation is expected to be 5.1% next year. What is the real interest rate of the loan?

Solutions

Expert Solution

Given,

Interest rate = 10.6%

Inflation rate = 5.1%

Solution :-

Real interest rate = Interest rate - Inflation rate

= 10.6% - 5.1% = 5.5%

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

Calculate the 90-day AUD/USD forward rate, for the case that the current spot rate is AUD/USD 0.9425 and the interest rate in the US is 4% and in Australia 2%.

Suppose the fixed interest rate on a loan is 5.75% and the rate of inflation is...

Suppose the fixed interest rate on a loan is 5.75% and the rate of inflation is expected to be 4.25%. The real interest rate is 1.5%. Suppose now that instead of 4.25%, the inflation rate unexpectedly reaches 5.5%. Who gains and who loses from this unanticipated inflation? (Mark all that apply.) A. Lenders gain from a lower real interest rate. B. Borrowers lose from a lower real interest rate. C. Lenders lose from a lower real interest rate. D. Borrowers...

The interest rate is 10%. The inflation rate is 5% and the expected inflation rate is...

The interest rate is 10%. The inflation rate is 5% and the expected inflation rate is 10%. The actual real interest rate is: less than or equal to -5% greater than -5% but less than or equal to 0% greater than 0% but less than or equal to 5% greater than 5% but less than or equal to 10% greater than 10%

Discuss the effect of Interest Rate Parity on USD and AUD exchange rates.

Loan 1: $6,180.26 with interest rate of 6.550% Loan 2: $11,346.96 with interest rate of 5.410%...

Loan 1: $6,180.26 with interest rate of 6.550% Loan 2: $11,346.96 with interest rate of 5.410% Loan 3: $14,044.21 with interest rate of 6.840% A) You have decided you would like to clear out all of your student loans in 10 years by making monthly payments on your loans. How much are you paying monthly to clear your debt in 10 years? B) You found a company that will consolidate each individual loan at 5.200% What is your new monthly...

On May 14, 2020, the spot rate for Australian Dollars was 0.7306 USD/ 1 AUD. The 180-day...

On May 14, 2020, the spot rate for Australian Dollars was 0.7306 USD/ 1 AUD. The 180-day (6 month) forward rate quoted in the market was for 0.7340 USD/1 AUD and the risk-free rate on 180-day securities was 2.90 percent APR for United States LIBOR and 1.96 percent APR for Australian LIBOR. (LIBOR rates are widely used as a reference rate for financial instruments.) Assume that the US is the home country. Are the quotes for AUD above relative to the USD direct...

Barbara borrows $3000. She agrees to make monthly interest payments on the loan and will build...

Barbara borrows $3000. She agrees to make monthly interest payments on the loan and will build up a sinking fund with monthly deposits to repay the principal with a single payment 19 months from now. If the interest being charged on the loan is j12 = 8.5% and the interest being earned on the sinking fund is j12= 5.4%, what is the monthly cost of the debt for Barbara?

If a loan is discounted, relative to the stated rate of interest the real rate of interest is?

If a loan is discounted, relative to the stated rate of interest the real rate of interest is?A. higherB. lowerC. the same

When a bank makes a mortgage interest rate commitment, it agrees that its lending rate will...

When a bank makes a mortgage interest rate commitment, it agrees that its lending rate will be fixed subject to the loan application’s being accepted and other conditions of the loan being satisfied. The bank knows that if market mortgage rates rise, borrowers are likely to hold them to their commitment; but if rates fall, borrowers can choose to finance their mortgages at the lower rates. What options contact is a way to offset the risk the bank makes when...

Spot rate USD/AUD 1.56. Assume annual interest rate is 3% in USA and 5% in Australi...

Spot rate USD/AUD 1.56. Assume annual interest rate is 3% in USA and 5% in Australi What should be the one-year forward rate USD/AUD per interest rate parity condition? Show that there is no arbitrage opportunity based on the forward rate that you computed. Compute arbitrage profit if one-year forward rate is USD/AUD 1.60. Pick any initial borrowing amount of your choice.

Subjects