Question

You need $50,000 in today's buying power 5 years from now. You can earn 3% APR...

You need $50,000 in today's buying power 5 years from now.
You can earn 3% APR in real terms on your investments.
How much do you have to invest, in nominal terms (the same amount each year), starting next year
for 4 years, to just meet your needs, if you expect inflation to be 4% per year?

$10,783
$12,768
$6,885
$5,287
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Answer #1

The nominal interest rate is calculated below:

The future value of amount $50,000 is computed below:

The amount to invest each year is computed below:

Therefore, the correct option is b.

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