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    Real Cash Flows: PV of Mr. Art Deco's Payment

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    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.

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    Solution Preview

    C1 $100,000
    r 8%
    inflation 4%

    Formula ...