Question

If the rate of inflation is running at 4.6 percent annually, and you have a 3.25 percent fixed rate mortgage, the (lender/borrower) is experiencing a negative real rate of return and the (lender/borrower) is experiencing a positive real rate of return. (circle the correct choices in each case).

Answer 1

The lender is experiencing a negative real rate of return and the borrower is experiencing a positive real rate of return.

Actual inflation is greater than inflation rate at the time when mortgage was taken, lender will be worse off and borrower will be better off.