you will receive $5,000 a year in real terms for the next 5 years. each payment will be received at the end of the peri...
Homework Answers
The winnings worth today in real dollars is computed as shown below:
The real rate is computed as follows:
1 + nominal rate = ( 1 + real rate ) x ( 1 + inflation rate )
1.10 = ( 1 + real rate ) x 1.02
real rate = 7.8431% Approximately
So the present worth will be:
= $ 5,000 / 1.0784311 + $ 5,000 / 1.0784312 + $ 5,000 / 1.0784313 + $ 5,000 / 1.0784314 + $ 5,000 / 1.0784315
= $ 20,046.38 Approximately
Feel free to ask in case of any query relating to this question
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