A cash flow received in two years is expected to be $10,816 in nominal terms. If the real rate of interest is 2% and the inflation rate is 4%, what is the real cash flow for year-2?
A) $11,236
B) $10,816
C) $10,000
D) $9,246

Question

Quizplus · Accepted Answer

The real cash flow is calculated by adjusting the nominal cash flow for inflation. Using the formula: Real Cash Flow = Nominal Cash Flow / (1 + Inflation Rate)^n, where n is the number of years, we get $10,816 / (1.04)^2 = $10,000.

A Cash Flow Received in Two Years Is Expected to Be