The ABC Company has contracted to make the following payments: 500,000 immediately; 50,000 at the end of year 1; 75,000 at the end of year 2; 100,000 at the end of year 3; 125,000 at the end of year 4; 150,000 at the end of year 5. What fixed amount of money should the company plan to set aside each year, at 8% interest per year, compounded annually, in order to make the above payments? Draw cash flow diagram.

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Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.