Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN: 9780357033609
Author: Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher: Cengage Learning
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Chapter 2, Problem 8FPE
Inflation and interest rates. Jessica Adams is 21 years old and has just graduated from college. In considering the retirement investing options available at her new job, she is thinking about the long-term effects of inflation. Help her by answering the following related questions:
- a. Explain the effect of long-term inflation on meeting retirement financial planning goals.
- b. If long-term inflation is expected to average 4 percent per year and you expect a long-term investment return of 7 percent per year, what is Jessica’s long-term expected real
rate of return (adjusted for inflation)? Be sure to consider the important impact of compounding.
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