@stuffisthings Wouldn't it actually be worth (0.95*110)+(0.05*0) = 104.5? And then wouldn't you have to discount that by the rate of inflation in order to figure out the net present value of that $104.50 (assuming you were going to sell the loan to someone else at that moment)? And also, if the risk-free nominal interest rate for the same period were more than 4.5%, wouldn't it be a bad decision to make the loan in the first place at all?
Any or all of this could be wrong, I'm just not sure where the value of $105 is coming from. I also don't know accounting, though, so forgive me if this is ignorant.
On LIBOR, explained
@stuffisthings Wouldn't it actually be worth (0.95*110)+(0.05*0) = 104.5? And then wouldn't you have to discount that by the rate of inflation in order to figure out the net present value of that $104.50 (assuming you were going to sell the loan to someone else at that moment)? And also, if the risk-free nominal interest rate for the same period were more than 4.5%, wouldn't it be a bad decision to make the loan in the first place at all? Any or all of this could be wrong, I'm just not sure where the value of $105 is coming from. I also don't know accounting, though, so forgive me if this is ignorant.