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If the nominal interest rate is 10% and the inflation rate is 2%, what is...

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Question

Finance

If the nominal interest rate is 10% and the inflation rate is 2%, what is the precise real interest rate?

Precise real interest rate =

Calculation steps:

(10%)

Suppose that for an investment, you need to invest $D now. Starting from year 3, you can receive $C with a growth rate of g per year until year m. You can then receive $F with a growth rate of b per year forever starting from year m + n. Determine the formula for the net present value of the investment. Simplify the formula as much as possible. Compute the net present value if D = 10M, C = 1M, g = 1%, F = 2M, b = 3%, m = 10, n = 5. Assume that the discount rate is 10% per year.

Formula:

Net present value:

Calculation steps:

Answer & Explanation Solved by verified expert
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