1. You would like to have $25,000 (in real $) in an account 8 years from now. If the inflation rate is expected to be 3%, and you expect a nominal return of 4% on the account, how much would you need to put in today?
2. An investment costs $1200 up front, but won’t start paying off until three years from now, at which time it will return $190 per year for a period of ten years. If your real hurdle rate is 5.5%, does this investment make sense?
3. You are offered $1600 (in nominal dollars) 7 years from now in exchange for a loan of $600 today. You expect inflation to run 2.4% per year, and your real hurdle rate is 4.5%. Should you make the loan?