Suppose a Loan of $100 Is Made at a Fixed

Multiple Choice

Suppose a loan of $100 is made at a fixed nominal interest rate of 5% for one year. During the year,there is unexpected inflation of 7%. Which of the following is true?

A) The inflation has redistributed income from the lender to the borrower
B) The real rate of interest is 12%
C) The borrower will be obligated to repay $107 instead of $105
D) The real rate of interest is 2%
E) None of the above