Suppose that the inflation rate is 2% and the real terminal value of an investment is expected to be $82,500 in 4 years. Calculate the nominal terminal value of the investment at the end of year 4. $85,800 $84,150 $89,301 $87,515

The answer is option (c) $89,301

Explanation:

Solution

Given that:

Inflation rate = 2%

The expected value of an investment = 82,500

Now,

nominal terminal value of the investment at the end of year 4.

Thus,

The nominal terminal value rate at the end of year four is given as follows:

= 82, 500 * (1 + 2%) ^4

=$89300. 65

= $89,301