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# 2 - Print name Sign name Econ 520 F 10 Recitation Leader...

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Print name_______________________ Sign name ________________________ Recitation Leader & Time __________________________ Econ 520 F 10 Homework 2 10/5, 10/7, due 10/8 For full credit, show your calculation on each computational question. 3.1 (10 homework points) What is the present discounted value of \$1000.00, payable in 8 years and not indexed for inflation , if the real interest rate is 4.00% and the nominal interest rate is 6.00%? (Assume annual compounding and give your answer to the nearest cent. Not all information is necessarily used.) Show your calculation. 3.2 (10 homework points) If the present discounted value of \$1000.00, payable in 8 years and indexed for inflation from today’s date , is \$567.89, what is the real interest rate? (Assume annual compounding, and give your answer to the nearest basis point , ie to the nearest .01%) Show your calculation. 3.3 (10 homework points) What is the present value of a perpetual income stream of \$8000 per year, indexed for inflation from today’s date , if the real interest rate is 4% and the nominal interest rate is 8%? (Not all information is necessarily used.) Show your calculation.

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2 - Print name Sign name Econ 520 F 10 Recitation Leader...

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