### Fisher Effect, inflation, time value of money, net future value of investment, balloon payment, interest rate

Please see the attached file. 1) Fisher Effect Year Expected rate of inflation Observed rate of inflation Expected real interest rate 2008 5% XX 1.5% 2007 4% 3.5% 3% a. Define the Fisher Effect and explain why expected inflation should have an impact on the nominal rate of interest? b. Today is January 1, 2008. What