1. You think that you need $60,000/year to live on when you retire. Assuming an annual inflation of 3.4%, how much would you need in actual dollars per year 40 years from now to have the same purchasing capability?
2. Assume that you borrow $15,000 for five years (annual payments) at a market rate of 5%. Assuming that inflation is 3.5%, what would the equivalent equal annual payment be in constant dollars?
3. What is the Actual dollar amount of a $15,000 constant dollar cash flow 10 years from now? Assume that the inflation free rate i’ is 7% and the market rate i=12%.