Assume you lend someone $1 million a year for the next 10 years, and they tell you they will give you $2 million a year for the following 10 years. a) if the interest rate for the next 20 years is expected to be 6% should you take this deal? b) the expected inflation rate is 3% per year over the next 20 years. Based on this info, show exsctly how your calculations changes and explain why?
Assume you lend someone $1 million a year for the next 10 years, and they tell you they will give you $2 million a year for the following 10 years. a) if the interest rate for the next 20 years is expected to be 6% should you take this deal? b) the expected inflation rate is 3% per year over the next 20 years. Based on this info, show exsctly how your calculations changes and explain why?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Assume you lend someone $1 million a year for the next
10 years, and they tell you they will give you $2 million a
year for the following 10 years. a) if the interest rate for
the next 20 years is expected to be 6% should you take
this deal? b) the expected inflation rate is 3% per year
over the next 20 years. Based on this info, show exactly
how your calculations changes and explain why?
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