Assume the expected inflation rate is 5% for each of the next two years and 7% per year for the three years after. Calculate the inflation adjustment (INFL)for a 5-year loan.

Question

Quizplus · Accepted Answer

The inflation adjustment (INFL) for a 5-year loan can be calculated as the average inflation rate over the period. For the first two years, the inflation rate is 5% each year, and for the next three years, it is 7% each year. The average inflation rate is calculated as: [(5% * 2) + (7% * 3)] / 5 = (10% + 21%) / 5 = 31% / 5 = 6.2%.

Assume the Expected Inflation Rate Is 5% for Each of the Next