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g sally johnson loaned a friend $10,000 at 15% interest, compounded annually. the loan will be paid in four equal end-of-year payments. sally expects the inflation rate to be 3%. after taking inflation into account, what rate of return is sally receiving on the loan? compute your answer to the nearest 0.1%.

Respuesta :

Inflation Rate of Return is 11.65%.

What Is Rate of Return?

Rate of Return (RoR) is the increase or decrease in value of an investment over a predetermined period of time in relation to the initial investment. When calculating the rate of return, you decide what percentage changed from the beginning of the period to the conclusion.

To solve the question:

Amount Landed = USD 10,000

Annual Rate of Interest = 15%

Inflation Rate = 3%

Formula to get the equivalent rate of inflation :

Actual Rate of Inflation = Adjusted Rate of Inflation + Inflation Rate + (Adjusted Rate of Inflation × Inflation Rate)

where,

[tex]Ieq[/tex] = Actual Rate of Inflation

[tex]I_{infl}[/tex] = Adjusted Rate of Inflation

I = Inflation rate

0.15 = [tex]I_{infl}[/tex] + 0.03 + 0.03 × [tex]I_{infl}[/tex]

1.03 [tex]I_{infl}[/tex] = 0.15 - 0.03

1.03 [tex]I_{infl}[/tex] = 0.12

[tex]I_{infl}[/tex] = 0.12/0.03

= 0.1165

= 11.65 %

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