a) Lasisi would like to buy a royal motorbike for okada business, and it is currently on the market at ¢11,400, but he cannot afford it right now. However, he thinks that he would be able to buy it after 4 years. If the expected inflation rate as applied to the price of this motorbike is 3.9% per year, what is its expected price after four years?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 34P

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Question

a) Lasisi would like to buy a royal motorbike for okada business, and it is currently on the market at ¢11,400, but he cannot afford it right now. However, he thinks that he would be able to buy it after 4 years. If the expected inflation rate as applied to the price of this
motorbike is 3.9% per year, what is its expected price after four years?

(b) Alata Kwaku borrowed ¢2,130 from his uncle and promised to pay him ¢2,720 after 2 years. With annual compounding, find the implied annual rate of interest for this loan.

(c) Oberima Adonteng’s bank account pays 8.8% annual interest, compounded monthly. If the present value is ¢2, its future value is ¢4. How long will it take the money to double in the account?

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