Question
Suppose that you took out a student loan at a rate of 4.45%. Note that this...
Suppose that you took out a student loan at a rate of 4.45%. Note that this rate is constant for the life of the loan. Next, suppose that at your first job after graduation, there are two possibilities: (i) the inflation rate is 2%, and your wages rise by 4%, or (ii) the inflation rate is 3%, and your wages rise by 5%. (No, you certainly do not get a choice of inflation rates, but pretend that you can for the sake of exploring this important concept.) Briefly explain whether you would prefer the first or the second situation.
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