Question

In 15 years from now, you make a deposit worth $31,000 in constant dollars. What is the actual dollar amount of this deposit? Assume the inflation-free interest rate i' is 4% and the market interest rate is 8%.

Answer 1

$17,214 and $54,606

Step-by-step explanation:

The computation is shown below:

For 4% inflation free risk rate, the dollar amount would be for 0 year

= Deposit×(1+interest rate^-number of years)

= $31,000×(1+0.04^-15)

= $17,214

For 8% market interest rate, the dollar amount would be for 15 year

= Dollar amount computed ×(1+interest rate^number of years)

= $17,214×(1+0.08^15)

= $54,606