ssume you lend $10.000 for a five (5) year period. The currentthe real rate at the time you lend the money is 2.3%. You chargeno
risk premium on the loan.
At the end of the 5-years loan period you receive back your $10,000and then decide to determine your rate of return. You collect thefollowing 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 expectedrequired rate of return on the loan? Showclearly all work, carrying all calculations out to four (4) decimalplaces. Highlight in bold your answer.
2) Using the Fisher Equation, what is yourrealized required rate of return on theloan? Show clearly all work, carrying all calculations outto four (4) decimal places. Highlight in bold youranswer.
Thank you.
