Question

A) Assume that, starting next year, you make annual deposits of $ 950 into a savings account that pays 6% interest. How much will you have in your account after 11 years?

B) You made an investment over the past year, and your nominal return was 7.3%. Over the same year, the rate of inflation was 3.9%. What was the real rate of return for this investment?

C) Assume that, starting next year, you will make deposits of $572 each year into a savings account. You will make a total of 9 annual deposits. If the savings account interest rate is 11%, what is the present value of this savings plan?

Answer 1

Ans:- we will use the FV and PV function of excel to find the Future Value and Present Value

For (a) Rate=6%,Nper=11,Pmt=-950,PV=0

For (c) Rate=11%,Nper=9,Pmt=-572,FV=0

Ans:-(b) Real rate of return is given by (1 + nominal rate) / (1+inflation rate) - 1 = ( 1 + 0.073) / (1 + 0.039) - 1 = 0.0327 =3.27%.

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