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    4 Year Investment With Nominal Discount 7.5% And Inflation 4.2%

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    You plan on depositing $10,000 a year in real terms into your investment account for the next 4 years. The relevant nominal discount rate is 7.5 % and the inflation rate is 4.2%. What are these deposits worth in today's dollars?

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    Solution Preview

    The real rate of interest is approximated by taking the nominal interest rate and subtracting inflation. The real interest rate is the growth rate of purchasing power derived from an investment.

    Thus a person's nominal income is increasing even if the real income is decreasing due to inflation. In ...

    Solution Summary

    Calculates deposit worth in present day with step by step solution.