Homework Answers
Answer
The amount at the end 3 is $1000; we need to find the value in the
term of actual dollar value in year 0.
It means it needs to equal the purchasing power of the $1000 of
after three years how much can purchase as prices are increased by
5% per year.
PV=FV*(1+i)^(-n)
PV=value at n=0=year
FV=futre value
i=inflation rate
n=years
PV=1000*(1.05^-3)
=863.837599
=$863.84
The amount in contant dollars is $863.84
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