Question: A European-based cattle genetics engineering research lab is planning for a major expenditure on research equipment. The lab needs $5 million of todays dollars so

A European-based cattle genetics engineering research lab is planning for a major expenditure on research equipment. The lab needs $5 million of today’s dollars so that it can make the acquisition 4 years from now. The inflation rate is steady at 5% per year.

(a) How many future dollars will be needed when the equipment is purchased if purchasing power is maintained?

(b) What is the required amount of the annual deposit into a fund that earns the market rate of 10% per year to ensure that the amount calculated in part (a) is accumulated?

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