Question

Suppose that the inflation rate is 2.5% and the real terminal value of an investment is expected to be $20,000 in 2 years. Calculate the nominal terminal value of the investment at the end of year 2.

Answer 1

$21012.50

Explanation:

$20,000 today will be inflated to $20,000·(1.025)^2 ≈ $21012.50 in 2 years. We presume this is the nominal terminal value you want.