20 pts D Question 4 You need $25,000 in today\'s buying power. 5 years from now.

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20 pts D Question 4 You need $25,000 in today's buying power. 5 years from now. You can earn 3% APR in real terms on your investments. How much must you invest (a different amount each year), starting next year for 4 years to just meet your needs, if you expect inflation to be 4% per year? The amount you invest should just maintain the real cash values. Year 1 Year 2 Year 3 Year 4 5 $6,589 $6,852 $7,126 O Year 1 Year 2Year 3 Year 4 $5.732 $5,961 $6,200 $6,448 |Year 1 |Year 2 |Year 3 |Year 4 $6,034 $6,275 $6,526 $6,787 |Year 1 |Year 2 $6,456 $6.714 |Year 3 Year 4 $6.983 $7,262 Question 5

Explanation / Answer

Amount to be invested in real terms each year=25000/(1.03^4+1.03^3+1.03^2+1.03^1)=5802

Amount to be invested in nominal terms:

Year 1=5802*1.04=6034

Year 2=6034*1.04=6275

Year 3=6275*1.04=6526

Year 4=6526*1.04=6787

Option C

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