Essay
A lender expects to earn a real interest rate of 4.5% over the next 12 months. She charges a
9.25% (annual) nominal rate for a 12-month loan. What inflation rate is she expecting? If the lender is in a 30% marginal tax bracket, the borrower in a 25% marginal tax bracket, and they both have the same inflation expectations, what are the real after-tax rates each expects?
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The first part she expected an inflation...View Answer
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