Your firm expects to receive a cash flow in two years of $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 discounting the nominal cash flow by the inflation rate. The formula is: Real Cash Flow = Nominal Cash Flow / (1 + Inflation Rate)^n. Here, $10,816 / (1 + 0.04)^2 = $10,000.

Your Firm Expects to Receive a Cash Flow in Two