Mr. Art Deco will be paid $100,000 one year hence. This is a nominal flow, which he discounts at an 8% nominal discount rate:

PV 5 100,000 1.08 5 $92,593 The inflation rate is 4%.

Calculate the PV of Mr. Deco’s payment using the equivalent real cash flow and real discount rate. (You should get exactly the same answer as he did.)

AppendixLO1