Suggested problems for Chapter 8 – Solutions
1.
(8.3)
f = 4% per year;
How long until $1 (actual) will be worth $0.50 (real) in today's
purchasing power?
From Equation 8-1,
with k = 0, we have
(R$)
N
= $0.50 = ($1)
N
)
04
.
1
(
1
(1.04)
N
= 2
N (ln (1.04)) = ln (2)
N =
)
04
.
1
ln(
)
2
ln(
18 years
In 18 years, the dollar's purchasing power will be one-half of what it is now if the
general price inflation rate is 4% per year.
2. (8.9)
By using Equation 8-1, but with each year's general price inflation taken into account
separately
, the R$ equivalents in year 0 dollars are calculated as follows.
EOY
Salary (R$ in Year 0)
1
$34,000 (P/F,2.4%,1)
$34,000
1
(1
0.024)
= $33,203
2
$36,200 (P/F,2.4%,1)(P/F,1.9%,1)
$36,200
1
(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)
$38,800
1
(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)
$41,500
1
(1
0.024)
1
(1
0.019)
1
(1
0.033)
1
(1
0.034)
= $37,235