The inflation rate in a country is 6% per year. What real rate of return will an investor make on a P10,000 investment in a food industry stock that yields an overall internal rate of return of 28% per year? O a. 22.35% O b. 18.40% O c. 15.60% o d. 20.75%
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- The index number representing the price level changes from 110 to 115 in one year and then from 115 to 120 the next year. Since the index number increases by five each year, is five inflation rate each year? Is the inflation rate the same each year? Explain your answer.Your rich aunt is going to give you an end-of-year gift of $1,000 for each of the next 10 years. Solve, a. If general price inflation is expected to average 6% per year during the next 10 years, what is the equivalent value of these gifts at the present time? The real interest rate is 4% per year. b. Suppose that your aunt specified that the annual gifts of $1,000 are to be increased by 6% each year to keep pace with inflation. With a real interest rate of 4% per year, what is the current PW of the gifts?• The following table shows the price of a specific stereo receiver for a five-year period. o Using year 3 as the base year, calculate the price index for each year. o What is the accumulated rate of inflation from year 1 to year 4? o What is the most recent annual rate of inflation? Year. Price. Price index 1 $ 88 2 $100 3 $120 4 $132 5 $140
- Assume that the economy has an annual inflation rate of 5 percent. Are the followinginvestments profitable in real terms? (d) The spot price of silver is $31 per ounce. You purchase 50 ounces of silver for $1,600,in order to compensate the merchant. Over the year, the spot price of silver rises to $34per ounce, and you are able to sell the silver you have at the spot price. (e) You purchase a Non-Fungible Token (NFT) for $98 million. The following year, you are able to sell it for $102.5 million.If the real interest rate is 11% and the rate of inflation is 3%, then if a firm can invest in a piece of machinery of $7,500 that will provide a profit stream of $3,000 per year for the next 3 years, what should the firm do? A. Invest in the machine b. Do not invest in the machine.Interest RatesSuppose that you make a loan of $1,500 to your friend at a rate of 10% interest because you expect the inflation rate to be 5%.a) By how much does your purchasing power increase once the loan is completely paid off?b) Assuming that after the loan was repaid, you discovered that inflation rate over the life of the loan was only 2%. Who gained?
- Assuming that the inflation rate from 2018 through 2020 is 6% per year: a) What would be the real value of a $55,000 income in each of the three years? b) What does the real income computed for 2019 mean?In 1981, twin sisters were each given an inheritance of $10,000. one sister( Abby) placed her inheritance in an index fund in the stock market that earned her an average annual return of 9% over thenext 40 years. The other sister( Gabby) invested her money in a series of certificate of deposit accounts(CD's). For the first 20 years, Gabby was able to make average annual returns of 5% investing in CD's, but the second 20 year period, she earned annual returns of only 3%. Assume that inflation averaged 3.5% annually for this 40 year analysis period. a) How many actual dollars does Abby have today? b) How many actual dollars does Gabby have today? c) How many real 1981 based dollars does Abby have today? d) How many real 1981 based dollars does Gabby have today? e) What is the increased buying power that Abby has today as compared to 1981? f) What is the increased buying power that Gabby has today as compared to 1981?You would like to buy a house that is currently on themarket at $15,000, but you cannot afford it right now. However, you think that youwould be able to buy it after 15 years. If the expected inflation rate as applied to the priceof this house is 8% per year, what is its expected price after four years?
- Assuming that the inflation rate from 2017 through 2019 is 6% per year: a) What would be the real value of a $65,000 income in each of the three years? b) What does the real income for 2019 mean?If general price inflation is estimated to be 5% for the next 5 years, 7.5% for the 3 years after that, and 3% the following 5 years, at what market interest rate (i) would you have to invest your money to maintain a real purchasing power growth rate (i′) of 10% during those years?If the real discount rate is 7% and the inflation rate is 10%, Which of the follo ing interest rates ill be sed to find the present orth of a which of the following interest rates will be used to find the present worth of a series of cash flows that are in constant-worth dollars? a. 10.0% b. 17.7% c. 7.0% d. 10.7%.
