Revision as of 18:46, 4 December 2023 by Admin (Created page with "Suppose you invest $10,000 per year for 10 years at an average return of 5.5%. The average future inflation rate is 2% per year. Determine the purchasing power, in today's dollars, of your investments. <ul class="mw-excansopts"> <li>$105,623</li> <li>$111, 432 </li> <li>$135, 835</li> <li>$140,253</li> <li>$142,111</li> </ul> '''References''' {{cite web |url=https://alo.mit.edu/wp-content/uploads/2015/06/PS_Part1.pdf |last1=Lo |first1=Andrew W. |last2 = Wang | first...")
ABy Admin
Dec 04'23
Exercise
Suppose you invest $10,000 per year for 10 years at an average return of 5.5%. The average future inflation rate is 2% per year.
Determine the purchasing power, in today's dollars, of your investments.
- $105,623
- $111, 432
- $135, 835
- $140,253
- $142,111
References
Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 20, 2023.
ABy Admin
Dec 04'23
Solution: B
The future value of the investments equal:
1.055 × ($10,000/0.055 )(1 − 1/1.05510 ) × (1.055)10 = $135, 835 (end of year 10)
And the purchasing power, in today's dollars, equals:
$135,835/1.0210 = $111, 432
References
Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.