The real interest rate is 1.8% per annum, and the inflation rate is 3% a year. What is the present value of a nominal payment of $5,000 next year? Round your answer to the nearest $10.
A)$4,910
B)$4,550
C)$4,770
D)none of the above

Question

Quizplus · Accepted Answer

The nominal interest rate can be calculated using the formula: nominal rate = real rate + inflation rate = 1.8% + 3% = 4.8%. The present value is calculated using the formula: PV = FV / (1 + nominal rate) = $5,000 / (1 + 0.048) = $4,770.

The Real Interest Rate Is 1