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Assume the real rate of interest is 4.00% and the inflation rate is 6.00%. What is...

Assume the real rate of interest is 4.00% and the inflation rate is 6.00%. What is the value today of receiving 11,413.00 in 9.00 years? round answer to 2 decimal places

Solutions

Expert Solution

We will first calculate the nominal rate of interest to use it as discounting rate.

Nominal rate of interest=( (1+real interest rate) (1+inflation))-1

= ((1.04)(1.06))-1

= .1024 or 10.24%

We will now discount the future sum at the present value= 11413/(1.1024)^9= $ 4746.21

Present value will be= $4746.21

jeff jeffy answered 2 years ago
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