An investment offers $2,374 per year for 13 years, with the first payment occurring 1 year from now. If the required return is 8
1 answer:
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Answer:
CPI at the beginning of the year = 192.52
Explanation:
given data
nominal interest rate = 7 percent
real interest rate = 4 percent
CPI = 198.3
to find out
CPI at the beginning of the year
solution
we know that according to fisher equation
1 + r = ....................1
and for smaller values is equivalent to r
r = n - i .....................2
here r is real interest rate and n is nominal interest rate and i is inflation rate
so from equation 2
4 = 7 - inflation rate
inflation rate = 3 percent
so
Rate of inflation = (CPI at the end of the year - CPI at the beginning of the year) × 100 ÷ CPI at the beginning of the year
put here value
3% = (198.3 - CPI at the beginning of the year) × 100 ÷ CPI at the beginning of the year
CPI at the beginning of the year =
CPI at the beginning of the year = 192.52