| When the inflation rate is 4% per year, how many inflated dollars will be requ
ID: 1114660 • Letter: #
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| When the inflation rate is 4% per year, how many inflated dollars will be required 20 years from now to buy the same things that S10,000 buys now? 2. Find the present worth of a program using a piece of equipment that has a first cost of $150,000 an annual operating cost of $60,000, and a salvage value of 20% of the first cost after 5 years. Assume that the real interest rate is 10% per year, that the inflation rate is 7% per year, and that the inflation is to be a all costs are future dollar estimates. ccounted for. Also, assume t hat 3. An industrial engineer planning for her son's college education made deposits into a separate brokerage account every time she earned extra money from side consulting jobs at NPMG. The amounts and timing of the deposits are as follows: EOY1 $5,000; EOY2 $8,000; EOY3 $9,000: EOY4 $9,000; EOY7 $15,000; EOY11 $16,000; EOY17 $20,000. If the account increased at a market rate of 15% per year and inflation averaged 3% deposit period, determine the value of the college education account at the end of year 17 in today's dollars. per year over the 4. A pulp and paper company is planning to set aside S150,000 now for possibly replacing its large synchronous refiner motors. If the replacement isn't needed for 5 years, how uch will the company have in the account p earns a market rate of 10% per year and the inflation rate is 4% per year? rovided it s. Which of the statements below is true with respect to the rate of inflation? a It erodes the purchasing power of cons b. It is a decrease in the value of currency c. It increases the money supply d. All the aboveExplanation / Answer
1. Here, we need to actually calculate the future value of $10,000 after 20 years when the interest rate is 4%
The formula is:
future value = present value * (1+r)n, in which r in interest rate (which is 4% = 0.04) and n is number of periods (which is 20 here)
putting the values, we get the future value = 10,000 (1+0.04)20
= 10,000 (1.04)20
= 10,000 * 2.1911 = 21911.23
So, $21,911.23 inflated dollars will be required to buy the same things as $10,000 buys now.
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