Real versus Nominal Annuities. Good news: you will almost certainly be a millionaire by the time you retire in 50 years. Bad news: the inflation rate over your lifetime will average about 3 percent.

a. What will be the real value of $1 million by the time you retire in terms of today’s dollars?

b. What real annuity (in today’s dollars) will $1 million support if the real interest rate at retirement is 2 percent and the annuity must last for 20 years?