Delilah says borrowers who already have loans with a fixed interest rate can benefit from increases in inflation rates. Explain whether Delilah's statement is correct.
Delilah's statement is correct. When inflation rates increase, the lender decreases the principal by the rate of inflation, reducing the cost of the loan.
Delilah's statement is correct. When inflation rates are greater than the interest rate, the value of the borrower's future payments is less than the cost of the principal and the time value of money.
Delilah's statement is not correct. When inflation rates exceed the fixed interest rate, the value of the borrower's future payments increase, which makes the loan more expensive for the borrower.
Delilah's statement is not correct. The fixed interest rate on existing loans increases as inflation increases. The borrower pays more in interest, increasing the value of future payments.
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