An investor places $100,000 in a bond that earns 10% interest per year for 5 years. During this period, inflation averages 10% per year. At the end of 5 years, the nominal value of the investment (the value before accounting for inflation) grows to $⁢161,051 Use the following formulas to calculate the real value of the investment in today's dollars. Inflation factor formula: inflation factor is equal to open paren 1 plus annual inflation rate close paren to the number of years th power Present value formula: present value=(future nominal value)/(inflation factor) How did inflation affect the investment's real value and nominal value after 5 years?

Question

Revolt · Accepted Answer

The nominal value increased to 161 dollars comma 051, but the real value remained constant at 100 dollars comma 000 due to inflation.

Inflation and the CPI - Quiz Quiz

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