Question

1. You would like to have the current equivalent in terms of today's buying power of $4,000 in years 4 5 and 6 How much would you have to invest in years 1, 2 and 3 (the same amount in each year in nominal terms) to fund this level of real consumption?
You expect inflation to be 3% per year over that time period. Your investments earn 7% per year in nominal terms.

$3,265

$3,781

$3,857

$3,706

2. You would like to have the current equivalent in terms of today's buying power of $2,500 in years 3 4 and 5 How much would you have to invest today (in nominal terms) to fund this level of real consumption?
You expect inflation to be 1% per year over that time period. Your investments earn 4% per year in nominal terms.

$6,807

$6,673

$6,540

$6,414

3. You would like to have the current equivalent in terms of today's buying power of $2,500 in 10 years. How much would you have to invest today (in nominal terms) to fund this level of real consumption?

You expect inflation to be 5% per year over that time period. Your investments earn 7% per year in nominal terms.

$1,271

$2,070

$2,112

$2,500

Answer 1

Therefore, the correct answer is second option.