Your firm recently lent Arlington Enterprises $22,440,000 million for one year at an interest rate of 12.00%. Inflation during the year is expected to be 3.80%.
Answer the following questions to gauge the impact of inflation on the real interest to be paid. (Round all answers to 2 decimal places.)
a. How much interest income will your firm receive from the transaction, calculated the traditional way? Interest income $
b. What is the approximate real rate of interest? Approximate real rate of interest %
c. What is the real portion of the interest income? Real portion of interest income $
d. By how much will interest income be understated due to inflation? Understated interest $