Q1.)
How many years will take for the dollar’s purchasing power to be one –third what it is now, if the general inflation rate is expected to continue at the rate of 7% for an indefinite period?
Q2.)
Suppose that you borrow $60,000 at 9% compounded monthly over five years knowing that the 9% represents the market interest rate, you compute the monthly payment in actual dollars as $1245.51. If the average monthly general inflation rate is expected to be 0.25%, determine the equivalent equal monthly payment series in constant dollars.
Q3.)
A series of five constant-dollars (or real- dollars) payments, beginning with $8,000 at the end of the first year, are increasing at the rate of 5% per year. Assume that the average general inflation rate is 5% and the market interest rate is 12% during this inflationary period. What is the equivalent present worth of the series?
Q4.)
An annuity provides for 10 consecutive end-of-year payments of $15,000. The average general inflation rate is estimated to be 6% annually, and the market interest rate is 8% annually. What is the annuity worth in terms of a single equivalent amount of today’s dollars?
Q5.)
Given the cash flows in actual dollars provided in the following table, convert the cash flows to equivalent cash flows in constant dollars if the base year is time
Assume that the market interest rate is 16% and that the general inflation rate (f-) is the estimated at 4% per year.
n Cash Flow (in Actual Dollars)
0 $20,500
4 $41,500
5 $36,500
7 $55,500
Q6.)
A 10-year $2,000 bond pays a nominal rate of 8% compounded semiannually. If the market interest rate is 9% compounded annually and the general inflation rate is 5% per year, find the actual and constant dollar amount ( time = year zero dollars) of the 14th interest payment on the…