Review of chap 8 and 9

Review of chap 8 and 9 - Chap 8 and 9 review Chapter 8 What...

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Chap 8 and 9 review
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Chapter 8 What is inflation? Change in price without any change in quality or quantity Can use CPI/PPI to measure inflation Some definitions A$: Dollars associated with a cash flow as of the time it occurs R$: Dollars expressed in terms of same purchasing power relative to a particular time i m : Market interest rate i r :Real interest rate
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Some formulas Use correct interest rates! If A$, then use market rate If R$, then use real rate ( R $) k ( A k 1 1 f k b ( A k ( P / F , f %, k b ) 1 i m (1 f )(1 i r ) i r i m f 1 f
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What are fixed and responsive annuities? Fixed: Annuities that do not respond to inflation Responsive: Annuities that respond to inflation Normally, quantities that we are interested in are fixed annuities Depreciation Lease payments Rent Responsive annuities will be specified by question
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Exchange rates, purchasing power Similar to inflation Study purchasing power between two countries
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Review of chap 8 and 9 - Chap 8 and 9 review Chapter 8 What...

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