Question

Suppose that you borrow $60,000 at 9% compounded monthly over five years. Knowing that the 9% represents the market interest rate, you compute the monthly payment in actual dollars as$2,372.46. If the average monthly general inflation rate is expected to be 0.5%, determine the equivalent equal monthly payment series in constant dollars.

Answer 1

To determine the equivalent equal monthly payment series in constant dollars, we need to adjust the monthly payment for inflation. The adjusted monthly payment is $2,360.00.

Step-by-step explanation:

To determine the equivalent equal monthly payment series in constant dollars, we need to adjust the monthly payment for inflation. The average monthly general inflation rate is 0.5%. To calculate the adjusted monthly payment, we can use the formula:

Adjusted Monthly Payment = Monthly Payment / (1 + Inflation Rate)

Substituting the values into the formula, we get:

Adjusted Monthly Payment = $2,372.46 / (1 + 0.005)

Adjusted Monthly Payment = $2,360.00

Therefore, the equivalent equal monthly payment series in constant dollars is $2,360.00.