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16 May, 13:14

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

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  1. 16 May, 13:23
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    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
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