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Unformatted text preview: Hw6 Solutions1. (8.3) f = 4% per year; How long until $1 (actual) will be worth $0.50 (real) in today's purchasing power?From Equation 81, with k = 0, we have (R$)N= $0.50 = ($1) (1.04)N= 2 N (ln (1.04)) = ln (2) N = 18 years In 18 years, the dollar's purchasing power will be onehalf of what it is now if the general price inflation rate is 4% per year. 2. (8.9) By using Equation 81, but with each year's general price inflation taken into account separately, the R$ equivalents in year 0 dollars are calculated as follows. EOY Salary (R$ in Year 0) 1 $34,000 (P/F,2.4%,1) =$34,0001(1+0.024)= $33,203 2 $36,200 (P/F,2.4%,1)(P/F,1.9%,1) =$36,2001(1+0.024)1(1+0.019)= $34,692 3 $38,800 (P/F,2.4%,1)(P/F,1.9%,1)(P/F,3.3%,1) =$38,8001(1+0.024)1(1+0.019)1(1+0.033)= $35,996 4 $41,500 (P/F,2.4%,1)(P/F,1.9%,1)(P/F,3.3%,1)(P/F,3.4%,1) =$41,5001(1+0.024)1(1+0.019)1(1+0.033)1(1+0.034)= $37,235 3. (8.11) 3....
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This note was uploaded on 11/13/2011 for the course IE 343 taught by Professor Vincent,g during the Fall '08 term at Purdue UniversityWest Lafayette.
 Fall '08
 Vincent,G

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