You purchased an investment which will pay you $15,000, in real dollars, a year for the next three years. The nominal discount rate is 8% and the inflation rate is 3.6%. What is the present value of these payments?

Question

Quizplus · Accepted Answer

To find the present value of the payments, we first need to calculate the real discount rate using the formula: (1 + nominal rate) / (1 + inflation rate) - 1. This gives us a real discount rate of approximately 4.35%. Then, we calculate the present value of each $15,000 payment over the next three years using this real discount rate and sum them up to get approximately $41,431.91.

You Purchased an Investment Which Will Pay You $15,000, in Real