Question

Your firm recently lent Arlington Enterprises $22,860,000 million for one year at an interest rate of...

Your firm recently lent Arlington Enterprises $22,860,000 million for one year at an interest rate of 11.50%. Inflation during the year is expected to be 3.50%. Answer the following questions to gauge the impact of inflation on the real interest to be paid. (Round all answers to 2 decimal places.)

a. How much interest income will your firm receive from the transaction, calculated the traditional way?

Interest income           $

b. What is the approximate real rate of interest?             

Approximate real rate of interest            %

c. What is the real portion of the interest income?             

Real portion of interest income            $

d. By how much will interest income be understated due to inflation?    

Understated interest           $

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