please If ecel is used please explain carefully so i can follow understanding. I

Question

please If ecel is used please explain carefully so i can follow understanding. If you could please do it by hand. Thanks for your time

00|08775-48503|3 7 5 7 2 42-2100 00-00000-00000-0 0000 00-0 8 7 7 5|48503|3 7572 097-76 21-11100-00000-0 0000 00-00000-00000-0 0000 7 69-5 9-7 4 2 7-3 7886 338 7 3-07 34-55677- 8899001122 69-810 673 16-901 05-129 12-04 6-5 4400 8-70296 01197|54336 05-29755-6 8150 35-81 12-4 5 7 9 1-3 5803 7869-78310-13579 6556 44433 00-00000-00000-0 0000 051 87-77666-5555 53|1 1 539-39699-9 0603 18-05598 52-19877 22-3 4 4 5 6|77890|12456 56-07 2673 9025 0-12345-6 7890 45-6789

Explanation / Answer

a. $7500 was invested 20 years ago by John and cummulative return over these years is 507%.

So value of investment today is = 7500*(1+507/100) = $45525

b. Inflation will reduce the return in real terms because of the higher prices.  Average inflation over 20 years is 5%.

Inflation = 5%

Cummulative inflation multiple = (1.05)^20 = 2.653

Return = 507%

Return Multiple = 1+507/100 = 6.07

Real Return = 6.07 - 2.653 = 3.416

(i was not sure what b. is asking. Hope it will answe it)

c. Real Return Multiple = 3.416

So Real compound interest = (3.416)^1/20 - 1 = 6.33%

d. Intial investment = $7500

After 1st year = decline 17% = $6225

After 2 year = decline by 31% = $4295.25

Now Present value which we have calculated above in $ terms is $45525

So, 45525 = 4295.25 * (1+r)^18

So r = 14%

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