Westonci.ca is the premier destination for reliable answers to your questions, provided by a community of experts. Get the answers you need quickly and accurately from a dedicated community of experts on our Q&A platform. Get immediate and reliable solutions to your questions from a community of experienced professionals on our platform.

Suppose that the inflation rate is 2% and the real terminal value of an investment is expected to be $82,500 in 4 years. Calculate the nominal terminal value of the investment at the end of year 4.

Sagot :

Answer: $89300.65

Explanation:

Based on the information given in the question, the nominal terminal value of the investment at the end of year 4 will be calculated thus:

Inflation rate = 2%

Real terminal value of investment = $82,500

Normal terminal value of investment will be:

= $82500 × (1+2%)⁴

= $82500 × (1 +0.02)⁴

= $82500 × 1.02⁴

= $89300.65