Probleem 228 over the le er the contract is eget di Imagine

Probleem 2.28 over the le er the contract is eget di Imagine wou bem ow SS00 from your roommate, agre ?ng to pay her back S 00 plus il pe cent nominal interest in one vear. As i e flat be 4.08 percent. What ls the totai dollar amount you wil have to pay her back in a year? what dollar anount of the interest payment is the reuh of the real rate of interest? (Round answers to 2 decimal places, e.g 12.25.) Total dollar amount Inberest Payme

Solution

Image is not very clear. So I have shown the methodology for calculation. If the numbers that I chose are slightly out of line, please mentioned them in comments and I can edit the answer accordingly.

Total dollar Amount to be paid back = P + P * r * t

where P is the principal borrowed, r is the rate of interest and t is the time period of borrowing

Total dollar amount to be paid = 800 + (800 * 11% * 1) = $888 --> Answer part a

By Fischer Equation,

Nominal rate of return = Real Rate + Inflation

Real rate = Nominal Rate - Inflation = 11% - 4.05% = 6.95%

Hence interest due to real rate of return = P * r * t = $800 * 6.95% * 1 = $55.60--> Answer to part b