Suppose a person named Sean borrows $100,000 in 2019 which he needs to pay back to the "Bank of Senerchia" in a year

Economics Apr 25, 2021

Suppose a person named Sean borrows $100,000 in 2019 which he needs to pay back to the "Bank of Senerchia" in a year. The nominal interest rate is 25% while the inflation rate is 5%. How much will Sean need to pay back in 2020?

Expert Solution

Computation of Amount Sean needs to pay back in 2020:

Payment will be made in terms of nominal interest rate.

Nominal interest rate = 25%

Interest payment = 25% of $100,000 = $25,000

She will have to pay back $100,000 + $25,000 = $125,000

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