Suppose that you lend $1000 to a friend who pays you bace $1100 the next year. Suppose that prices that year rose by 8% and the real rate of return in the stock market was 4%. You friend says that he or she was being more than fair by giving you more than the rate of inflation as a return. Do you agree or disagree with him/her and explain why.
2007-02-14 18:17:47 · 5 answers · asked by H B 1 in Social Science ➔ Economics
Disagree - due to opportunity cost.
If you had taken the $1000 and invested it in the stock market; you would have earned a nominal return of 1000 * 1.12 = $1120.
(Nominal return is inflation rate + real rate or, 8% + 4%)
2007-02-15 01:34:01 · answer #1 · answered by Anonymous · 0⤊ 0⤋
nope you shouldn't agree.
calculating the interest rate for the money you lended and what you got in return is 10%.
You should be asking a return of 12%.
(8% "inflation".. strength of dollar increased + 4% "rate of return" = 12%.)
In conclusion you should be asking him in return after a year of $1,120.
2007-02-15 02:28:35 · answer #2 · answered by ferris 3 · 0⤊ 0⤋
hold on!
This is math...
Disagree, because 8% is a larger difference than 4%. Although she paid back a extra $100 for that thousand, the money she gave back the next year was less. Therefore, it's disagreeable.
2007-02-15 02:21:29 · answer #3 · answered by ? 6 · 0⤊ 0⤋
Its your friend, you dont simply demand that they return the money, and they sure as hell should not pay an interest.
If you really needed the money yourself, you dont lend it.
I never would bring myself to letting a friend pay back more than what i originally lent. Its just cheap and by no means what a friend does.
2007-02-15 02:22:22 · answer #4 · answered by Santino 3 · 0⤊ 0⤋
Hmmmmm.. interesting...
You know he/she being fair to you, really! but IF only the variables you gave: the 8% and 4%, is the only case.
the only key point in your story though only one thing: how many percent do you able to have, is it above 8% or not?
the 10% line is your perspective in your decision to lend him or to other things.
Calculated by the variables you gave:
You'll gain 2% if you lent him/her = Profit $20, yeah!!!
You'll lose 4% without him/her
You'll lose 6% with him/her in your mind deciding these options, choosing the stockmarket
2007-02-15 05:18:03 · answer #5 · answered by Doo.ri 3 · 0⤊ 0⤋