Hi, question regarding inflation effects on reported earnings through borrowing costs. On Eq book, page 193 it is stated that “…borrowing costs at historical rate cause an understatement of reported earnings”. How is that so? Further they state that inflation cause borrowing costs to increase (yeah, agree), but nominal rates do not reflect the increase (are they talking about the"old" nominal rates or eg. current nominal rates in case inflation higher currently?). My problem 1. I don’t get how borrowing costs at hist. rates understate reported earnings. Eg. if firm had borrowed 5y ago with nom. rate at that 2% vs. now if inflation would be higher and they would have to borrow today eg. with rate of 5%. I would think that the borrowing cost at historical rate would equal 2% (pay 2% interest) --> reported earnings with borr.costs at hist.rates (2%) would be higher than vs. if the borrowing cost would be 5%? 2. Why they state that nom. rates do not reflect the increse in inflation? You got fisher as (1+n)=(1+r)(1+i) --> so in my opinion nominal rates DO reflect increse in inflation. Can’t fight the book, so maybe I’m missing something, thinking form wrong angle etc. So, how you guys understand this?