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Explain how a nominal interest rate of 100% can actually be a low rate.
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- Assume that Sarah agrees to lend $100 to Sam for one year. Sam agrees to pay Sarah $117 at the end of the year. If inflation over that one year is 8%, what real rate of interest does Sarah earn on her $100?Suppose you make a loan of $100 that will be repaid to you in 1 year.if the loan is denominated in terms of nominal interest rate, are you happy or sad if inflation is higher than expected during the year. What if the loan instead had been denominated in terms of a real return.The effective interest rate on a mortgage with monthly payments is 9.38%. What is the monthly interest rate on the mortgage? What is the nominal interest rate?