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Question: Indicate how an unanticipated 5 percent jump in the inflation rate will influence the wealth of the following: When prices rise, people worry whether the rise in their income will keep pace with inflation, and the more quickly prices rise, the more people suffer from the stresses of inflation and its uncertainties. People will constantly feel they have been fooled and cheated. Expectations about inflation affect future cash flow and require return and cost of capital followed directly from the present value equation. (Emery, Finnerty, 1997) A. A person whose major asset is a house with a 30-year mortgage at a fixed interest rate. As the text stated, inflation is an increase in the general (average) price level of goods and services in the economy. It indicates that it is very outstandingly good opportunity for the person. He or she would be very happy if inflation unanticipated jump up 5 percent. Like inflation, the purchasing power of a house will be reduced. For example, the 100,000-dollar loan that the person borrowed for a house, the loan could not buy the same house at the same amount next year. It would be a 105,000-dollars loan. In the same way, the interest rate will be increased sooner or later in long