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Homework Set 2 MGT 240, Spring 2015 Inflation, Real and Nominal Cash Flows This problem set is due January 29th at the beginning of class. To solve this problem set, the material in classes 1-5 and RWJ Chapters 5 and 6 are particularly useful. Students may work in groups of up to 4 people and each group submits one write-up. 1. (5 points) Your bank offers four savings products. All products pay interest at the end of the compounding period. Product Annual pays an APR of 12.00% compounded annually, Product Semi pays an APR of 11.80% compounded semi-annually, Product Quarterly pays an APR of 11.60% compounded quarterly and Product Monthly pays an APR of 11.40% compounded monthly. If you have savings of $100,000 to deposit and will not make…show more content…
After the last withdrawal, you do not want any money left over in your retirement account. The interest rate in nominal terms is 9% and the inflation rate is 4%. i) How much money will you withdraw in nominal terms on your 70th birthday? In nominal terms on your 75th birthday?

ii) How much money do you need in your retirement account in real terms on your 65th birthday? iii) How much money will you need to save each year in real terms in order to fund your retirement needs if you make constant deposits in real terms? What would your nominal deposit be on your 40th birthday (which corresponds to the real deposit calculated in this section)? What would your nominal deposit be on your 60th birthday (which corresponds to the real deposit calculated in this section)? iv) How much money will you need to save each year in nominal terms in order to fund your retirement needs if you make constant deposits in nominal
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