Assume that you are retired and that you have in hand an amount of £100,000. You would like to spend this amount over the next 20 years, that you expect to live, in equal annual instalments. However since there is also inflation in the economy you would like these equal instalments to be in real values. Work out what is the real annual amount you would be spending each and every year if the nominal interest rate is 8% and inflation is 4%. What can you say about your annual nominal spending?

Answer rating: 100% (QA)

To calculate the real annual amount you would be spending each year taking into account inflation an... View the full answer