Suppose you use the rate of inflation as the interest rate for determining the present value of $1. What would the present value of $3,000 received in three equal yearly payments be if the current rate of inflation is 3.5% and increases by 15 basis points each year?
What will be an ideal response?
PDV = $1,000/(1 + 0.035) + $1000/((1 + 0.035)(1 + 0.0365)) + $1,000/((1 + 0.035)(1 + 0.0365)(1 + 0.038)) = $2,796.38
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Answer the following statement true (T) or false (F)
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What will be an ideal response?