The following table lists the Actual cash flow for an investment. For the four years in...

  

 

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The following table lists the Actual cash flow for an investment. For the four years in question, the average inflation rate is 5% per year, the inflation free interest rate is 5% per year. Year 0 1 2 ----- Actual Dollar Cash Flows -20,000 10,000 10,000 10,000 10,000 3 4 a) Determine the Market interest rate (5 points) b) Determine the present equivalent value for this cash flow. (10 points) The following table lists the Actual cash flow for an investment. For the four years in question, the average inflation rate is 5% per year, the inflation free interest rate is 5% per year. Year 0 1 2 ----- Actual Dollar Cash Flows -20,000 10,000 10,000 10,000 10,000 3 4 a) Determine the Market interest rate (5 points) b) Determine the present equivalent value for this cash flow. (10 points)

Answer rating: 100% (QA)

a To determine the market interest rate we can use the concept of the real interest rate The real in... View the full answer