Suppose you borrowed $10,000 for five years from a local ban…

Suppose you borrowed $10,000 for five years from a local bank at annual interest rate of 4%. At the time of the loan, you expected annual inflation rate to be 1.2% over the next five years. However, in five years when you repay the loan, you realize that annual inflation rate was 2.6% instead. In this case, expected and actual real interest rates were: