Answer to Question #125507 in Macroeconomics for vatsal

Question

Suppose you borrow Rs.800000 in student loan @8% p.a. interest rate in 2019 :- (i) How much will you owe after 10 years of accumulating debt ? (ii) If inflation is 6% per year over this period, how much will you owe after 10 years in real 2019 Rupees ? (iii) Who is the loser in this scenario, you or the Bank ?

Answer 1

i) $800,000*1.08^{10}=1,727,140$

ii) $800,000*1.08^{10}/1.06^{10}=964,425.95$

iii) You, because you will pay more than you got and the bank will earn