Relationship between nominal and real interest rates

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Reference no: EM132046055

1. Assume the inflation rate is 2.05% and the nominal interest rate is 8.87%. Determine the real interest rate using the exact relationship between nominal and real interest rates.

2. Assume the inflation rate is 6.69% and the nominal required rate of return is 13.43%. What is the present value of a real $9,387.00 that will be received 14 years from now?

3. Assume the inflation rate is 3.82% and the real required rate of return is 4.19%. What is the present value of a nominal $57,302.00 that will be received 8 years from now?

4. Assume the inflation rate is 4.12% and you invest $4,723.89 at a real interest rate of 3.97%. (Assume no additional deposits or withdrawals; also, assume no taxes.)

a. How much in real dollars (current dollars) would be in the account after 13 years?

b. How much in nominal dollars would be in the account after 13 years?

Reference no: EM132046055

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