In: Finance
Suppose you determine that a firm's real sales in 2006 would be $10 million (in terms of 2004 dollars). What would the firm's nominal 2006 sales be assuming an annual inflation of 3% in both 2005 and 2006?
Group of answer choices
$10.609 million
$9.709 million
$9.426 million
Not possible to compute this without knowing CPIs in 2004 and 2006
$10.3 million
Nominal sales in 2006 = Real sales in 2006 in terms of 2004 dollars * (1 + rate of inflation)^2
Nominal sales in 2006 = 10 * (1 + 0.03)^2
Nominal sales in 2006 = 10 * 1.0609
Nominal sales in 2006 = $10.609 million
Option A is correct