What is the present value of $1,000 to be received 12 years from now if the requ

Question

What is the present value of $1,000 to be received 12 years from now if the required real rate of return is 3% compounded annually and the expected rate of inflation is 5% compounded annually? Suppose the 1-year interest rate in Switzerland is 3%, while the expected inflation rate in Switzerland is zero If the expected inflation rate in England were 2%, what would be the equilibrium rate in England? (State your answer as an APR with annual compounding) If you borrow money at a nominal interest rate of the 1,59% allows the interest to be tax-deductible, you are in the 35% income tax bracket, and inflation is 1.5%, what is the real rate of paying, after tax? (Assume both nominal interest and inflation one assume annual compounding, then state your answer as APR with compounding.) Suppose that at present exchange rates one Swiss Franc buys 1, 2075 Japanese Yen.

Explanation / Answer

Calculation of Real interest rate after tax:

Formula:

Real interest rate after tax =(( 1+ Interest rate * (1-Tax)) / (1+ Inflation rate)) -1

= ((1+ (11.59% *(1-35%)) / (1+1.5%)) -1

= ((1+0.075335) / 1.015) -1

= 1.059443 -1

= 0.0594

= 5.94%

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