1.When the inflation rate is 4% per year, how many inflated dollars will be requ
ID: 1114710 • Letter: 1
Question
1.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 $10,000 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 accounted for. Also, assume that all costs are future dollar estimates.
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% per year over the deposit period, determine the value of the college education account at the end of year 17 in today’s dollars.
4.A pulp and paper company is planning to set aside $150,000 now for possibly replacing its large synchronous refiner motors. If the replacement isn’t needed for 5 years, how much will the company have in the account provided it earns a market rate of 10% per year and the inflation rate is 4% per year?
5.Which of the statements below is true with respect to the rate of inflation?
It erodes the purchasing power of consumers
It is a decrease in the value of currency
It increases the money supply
All the above
Explanation / Answer
First question is answered below
1.
Inflated dollars = 10,000(1+0.04)20 = $21,911
Thus $21,911 will be needed in future to afford the goods and services worth $10,000 today.
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