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Unformatted text preview: the power of the number of each year. B. To take inflation into account, you must find the real interest rate, the one that is adjusted for inflation. If the inflation rate is 2 percent, the real interest rate of return would be 5 percent. The real interest rate would be the nominal interest rate minus the expected inflation. 7. A. You would use the internal rate of return. You would need to divide the yearly return by the interest rate paid and need to make this amount every year in order to pay for your investment. $2,000= Revenue per year/(1+i)+ Revenue per year /(1+i)squared+ Revenue per year /(1+i) cubed B. $1,750= Revenue per year/ (1+i) + Revenue per year / (1+i) squared+ Revenue per year / (1+i) cubed 8. C. If interest were at 10 percent the equation would be $2,000= Revenue per year/(1.1)+ Revenue per year /(1.1)squared+ Revenue per year /(1.1) cubed...
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This note was uploaded on 10/31/2010 for the course ECON 2310 taught by Professor Williams during the Spring '10 term at Western New Mexico.
- Spring '10