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14 December, 23:35

Assume the real rate of interest is 3.00% and the inflation rate is 6.00%. What is the value today of receiving 14,488.00 in 13.00 years?

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  1. 15 December, 00:18
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    Present Value = $15,874.25

    Explanation:

    Giving the following information:

    Assume the real rate of interest is 3.00% and the inflation rate is 6.00%. What is the value today of receiving 14,488.00 in 13.00 years?

    This is a rare case where the interest rate is negative:

    Interest rate = 0.03 - 0.06 = - 0.03

    Having said this, the present value is higher than the final value:

    PV = FV / (1+i) ^n

    PV = 14,488 / 0.97^3 = $15,874.25
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