Question

An investor can earn a 6.7% nominal rate of return, but inflation is expected to be...

An investor can earn a 6.7% nominal rate of return, but inflation is expected to be 3%. If the individual invests $3,000 per year for 25 years, the real future value of this investment is ________. (All investments occur at year-end).

Multiple Choice

  • $118,293

  • $73,571

  • $48,732

  • $66,334

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Homework Answers

Answer #1
Real Interest Rate ((1+Nominal Interest Rate)/(1+ Inflation%))-1
((1+6.7%)/(1+3%))-1
Real Interest Rate %: 3.59%
Period 25 Years
Payments                   3,000 per year
Future Value: FV(Rate%,Periods,-Payments,,0)
FV(3.59%,25,-3000,,0)
FV             1,18,294
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