your bockmarks here on the bookmarks ba imeort beokmarks new apters 10,31& 12 6

Question

your bockmarks here on the bookmarks ba imeort beokmarks new apters 10,31& 12 6 Required information To retire at a decent age and move to Hawali, an engineer plans to trust her account to an Investment firm that promises to make a real rate of return of 10% per year when the inflation rate is 45% per year. The account currently is valued at $540,000 and she wants to retire in 15 years Reference links Determine how much (in then current dollars) will be in the account for the realized rate of return to be a real 10% per year. The account should have $ Reference inks 20 p 3 4

Explanation / Answer

Nominal rate of return (R) = (1+ real rate of return)*(1+inflation rate) – 1

Nominal rate of return (R) = (1+10%)*(1+4.5%) – 1

Nominal rate of return (R) = 14.95%

Time = 15 years

Future value in the account after 15 years = 540000*(1+R)^n

Future value in the account after 15 years = 540000*(1+14.95%)^15

Future value in the account after 15 years = $4365443.72

Hence the account should have $4365443.72 after 15 years (in current dollars).

---------

If only real rate of return of 105 is considered,

Then

Future value in the account after 15 years = 540000*(1+10%)^15

Future value in the account after 15 years = $2255714.01

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