You wish to purchase in 6 years an item that today costs $1,700. The cost is exp

Question

You wish to purchase in 6 years an item that today costs $1,700. The cost is expected to inflate at an annual rate of 2.1%. You make a deposit today that perfectly finances the future purchase. The observed interest rate that your savings earns is 10.1% Describe the relation between your deposit, inflation, and the discount rate.

a.) the deposit equals the nominal cost of $1926 discounted at the nominal rate 10.1%

b.) the deposit equal the nominal cost of $1926 discounted at the real rate 7.84%

c.) the real interest rate is 10.1%

d.) Two choices, B and C, are correct

e.) None of the A-B-C choices are correct

*** I know the answer is [A]. Will someone please explain how they got this in step-by-step detail?

Explanation / Answer

Let

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.