Suppose that you took out a student loan at a rate of 4.45%. Note that this rate is constant for the life of the loan. Next, suppose that at your first job after graduation, there are two possibilities: (i) the inflation rate is 2%, and your wages rise by 4% or (ii) the inflation rate is 3%, and your wages rise by 5%. (No, you certainly do not get a choice of inflation rates, but pretend that you can for the sake of exploring this important concept.) Briefly explain whether you would prefer the first or the second situation.

Secured loans are protected by collateral security. examples: title loans where the borrower uses the car title as collateral security interest rates are lower and repayments are longer therefore risk is low as a collateral security is given as guarantee to the bank in case of failure to pay the loanunsecured loans are not protected by collateral security but it is given on the creditworthiness of the borrower, trusting that she/he will pay on time. examples; payday loans is a short term loan where the borrower lends money from the bank and pays is back when the borrower receives his/her wages.interest rates are high and repayments are shorter. but the risk is high as no collateral security is given as a guarantee to the bank for payment of the loan