Question

You lend $6,000 to a friend who pays you back $6,600 the next year. Suppose that prices that year rose by 7% and the real rate of return in the stock market was 5%. Your friend says that he or she was being more than fair by giving you more than the rate of inflation as a return. What do you think?

Answer 1

$$i_p=1.07$$

$$i_k=1.05$$

$$6000\times1.07\times1.05=6741$$

Your friend should have returned that amount