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 period with the first payment occurring one year from today. The relevant nominal discount rate is 9.625 percent and the inflation rate is 2.3 percent. What are your winnings worth today in real dollars?

Question

Quizplus · Accepted Answer

The correct answer is A because the present value of the winnings is $20,413. This is calculated by discounting each of the five payments back to the present at the real discount rate of 7.325% (9.625% - 2.3%). The present value of each payment is then summed to arrive at the total present value of the winnings.

You Will Receive $5,000 a Year in Real Terms for the Next