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To: Investor2 who wrote (49375)6/24/1999 10:44:00 PM
From: BGR  Read Replies (1) | Respond to of 86076
 
I believe it is because you pay interest in future and the nominal rates are projected into the future (10 year, 30 year, whatever). Hence, if you expect future inflation to be high, you are going to charge more for loans.



To: Investor2 who wrote (49375)6/25/1999 9:37:00 AM
From: Defrocked  Read Replies (1) | Respond to of 86076
 
Rationale investors act to maximize the present value of
wealth by balancing consumption and investment
patterns. Their allocations are steered by
the expected real rate of interest. Past inflation rates
are meaningless. The expected real rate of interest over the
investment horizon is a function of expected inflation
which is embedded in the nominal rate.


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