Carla earns $100,000 per year now, and pays $20,000 per year on her fixed rate mortgage. Her income is subject to a COLA clause. If the risk-free rate of interest is 3%, and the expected inflation rate is 2% per year, what is the spending power of her net income in 10 years, expressed in today’s dollars?
How would you find the present value of 10 years of Carla’s income without being given an inflation rate or interest rate?
Fill in the yield curve information to the right.
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