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Chapter 5.3, Problem 1CC

What is the difference between a nominal and real interest rate?

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An individual is planning for retirement and aims to withdraw $100,000 at the beginning of each year, starting from the first year of retirement, for an expected retirement period of 20 years. To fund this retirement plan, he intends to make 20 equal annual deposits at the end of each year during his working years. Assume a simple annual interest rate of 20% during his working years and a simple annual interest rate of 5% during retirement. What should his annual deposit amount be to achieve his desired retirement withdrawals? Please write down the steps of your calculation and explain result economic meaning.
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Chapter 5 Solutions

Corporate Finance Plus MyLab Finance with Pearson eText -- Access Card Package (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)

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