Inflation is expected to be an effective 2.1% p.a. for the next five years and an effective 2.6% p.a. thereafter. R would like to make semi-annual deposits, each of the same purchasing power as $4,000 has today starting in six months. The last deposit will take place in 20 years. Interest rates are expected to be J2 = 3.3% for the next 5 years, then rising to J4 = 3.8% thereafter. a. How much will R have in her bank account one year after her last deposit? [11] b. What is the purchasing power of the bank account from part(a)?

Answer rating: 100% (QA)

To solve this problem we can use the concept of present value and future value of cash flows We will ... View the full answer