Answer:
Instructions are listed below.
Explanation:
Giving the following information:
The present sum of $640,000.
The market interest rate is 13% per year and the inflation rate is 5% per year.
First, we need to calculate the real interest rate.
Real interest rate= interest rate - inflation rate
Real interest rate= 13 - 5= 8%= 0.08
Now, using the following formula we can calculate the future value on each year:
FV= PV*(1+i)^n
FV1= 640,000*1.08= 691,200
FV2= 691,200*1.08= 746,496
FV3= 746,496*1.08= 806,215.68
FV4= 806,215.68*1.08= 870,712.93
