Real Cash Flows: PV of Mr. Art Deco's Payment
Mr. Art Deco will be paid $100,000 one year hence. This is a nominal flow, which he discounts at an 8% nominal discount rate:
PV = 100,000/1.08 = $92,593
The inflation rate is 4%.
Calculate the PV of Mr. Deco's payment using the equivalent real cash flow and real discount rate.
Solution Preview
C1 $100,000
r 8%
inflation 4%
Formula ...
$2.19