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Suppose that the inflation rate is 2.5% and the real terminal value of an investment is expected to be $20,000 in 2 years. Calculate the nominal terminal value of the investment at the end of year 2.

1 Answer

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Answer:

$21012.50

Explanation:

$20,000 today will be inflated to $20,000·(1.025)^2 ≈ $21012.50 in 2 years. We presume this is the nominal terminal value you want.

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