EBK ENGINEERING ECONOMY
EBK ENGINEERING ECONOMY
17th Edition
ISBN: 9780134838229
Author: Sullivan
Publisher: PEARSON
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Chapter 8, Problem 25P
To determine

Calculate the present value.

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A man desires to have P3M money in his savings when he retires after 25 years. This has amount in the present purchasing power. If the expected average inflation rate is 7% per year and the savings earns 5.5%, what lump sum of money should he invest now?
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You are trying to estimate the real interest rate for the mining industry products and proceed as follows. You consider buying coal and gold in equal proportion, spending $1000 on coal, and another $1000 on gold in today's dollars. In 4 years from now, the selling values in actual dollars are predicted to be $1,270 (coal) and $1,210 (gold). Inflation (for coal) is 1.1% per year, for the next 4 years. For gold, the gold price index is predicted to rise in the next 4 years from the current 417 points to 431 points. Compute the estimated real interest rate, as a number, with 0.001 precision. Hint: Calculate real interest rate for the cash flow: 1) invest now $1000+$1000; 2) sell in 4 years coal and gold and obtain appropriate cash flow.
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