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1 Sep 2009, 11:16 PM
| #1 (permalink) |
| si seulement... HSC: 2006 Gender: Female Location: IH
Join Date: Nov 2005
Posts: 143
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1 Sep 2009, 11:21 PM  | Interest and inflation You can hide this advertisement by registering. How can a loan of $100 with interest of 2% and inflation of 5% have a real repay of $97.14. Where did the .14 come from?Diagram attached if it makes it clearer |
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5 Sep 2009, 9:03 PM
| #2 (permalink) | |
| Loquacious One HSC: 2006 Gender: Male
Join Date: Feb 2005
Posts: 2,220
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Today, 4:39 PM | Re: Interest and inflation Quote:
=> (1 + real interest rate) = (1 + nominal interest rate) / (1 + inflation rate) 1 + real interest rate = 1.02/1.05 "real interest rate" = - 0.02857.... So $100 investment gives a real repayment of: 100 x (1 + - 0.02857) = $97.14
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