You will receive $500 tomorrow. You will receive an additional nine cash flows growing at the rate of inflation of 2 percent per
year. The nominal interest rate is 10 percent. a. Find the value of the stream of cash flows. Make sure to show your work. b. What is the real value of each cash flow received? Make sure to show your work. c. Find the value of the stream of cash flows, based on real values. Make sure to show your work. d. What do you observe? Explain.
1 answer:
Answer:
please find the solution which is defined as follows:
Explanation:
please find the table in the attached file:
- In point A, The Cashflow value = 5474.86 (premised on the description of cash flows).
- In point B, the above table the PV of cash flow represents the real cost of its earned cash flow.
- In point C, its actual value of the cash flow source is 3643.921.
- In point D, The observation would be that the value of money year after year is depleting and is worth far more as inflation is weak.
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Answer:
CPI for the current year = 200
Explanation:
Given;
Contents in market basket
20X, 30Y, and 50Z
The current-year prices for goods
X = $2
Y = $6
Z = $10
The base-year prices are
X = $1
Y = $3
Z = $5
Now,
Total cost of market basket in the current year
= ∑ (Quantity × Price)
= 20 × $2 + 30 × $6 + 50 × $10
= $40 + $180 + $500
= $720
Total cost of market basket in the base year
= ∑ (Quantity × Price)
= 20 × $1 + 30 × $3 + 50 × $5
= $20 + $90 + $250
= $360
also,
CPI for the current year =
or
CPI for the current year =
or
CPI for the current year = 200