You are managing an investment portfolio and sell an “inflation protected” annuity that pays $3,448 per month (in real terms) for 9 years, starting next month. You forecast that inflation will be 0.33% per month over the 9 years. If you earn 3.54% APR (monthly compounding) nominal terms on your investments, how much do you need to invest today to fully fund the annuity?

You are managing an investment portfolio and sell an “inflation protected” annuity that pays $3,448 per month (in real terms) for 9 years, starting next month. You forecast that inflation will be 0.33% per month over the 9 years. If you earn 3.54% APR (monthly compounding) nominal terms on your investments, how much do you need to invest today to fully fund the annuity?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 34P

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