. . . . ii. Consider the following situation: The present is Year/Month/Week O. The base year for inflation calculations is also Year/Month/Week O. Sam's nominal MARR is 2.45% per year. Inflation is equal to the yearly inflation you calculated above. (You can find the equivalent monthly/weekly/etc. inflation using the same procedure as you would for adjusting the time scale of the MARR.) Sam has chosen to study and work in Victoria. As usual for our projects, Sam studies in Years 0, 1, 2, 3 and 4, and works starting in Year 5 and ending at the end of their working life. Sam rents a different place while studying & working, and buys groceries every week. Rent in Victoria is constant in real terms, at its baseline level from Project 1. (So if your baseline rent was $1,000 a month, rent will always be $1,000 in real terms.). In particular: o Rent while studying is constant in real terms, at its baseline level. o Rent while working is constant in real terms, at its baseline level. The price of food in Victoria is constant in real terms, at its baseline level. Sam's salary is paid once per year, at the start of the year, starting in Year 5. The last payment is in the last year of their working life. Their first salary payment is equal, in nominal terms, to the baseline salary payment from Project 1. So if that was $50,000 a year, in Year 5, Sam is handed over $50,000 in cash. Sam's salary goes up by 5% a year in nominal terms. Hint: Nominal = Real in the base year for inflation calculations. And since that also happens to be the present (time 0)... Calculate the net present value of living, studying and working in Victoria. Show your work. . . . . . 3 Statistics Canada. Table 18-10-0005-01 Consumer Price Index, annual average, not seasonally adjusted 14 Present value of living, studying & working in Victoria: $ Work: (Important note: Since every student will have a different numerical answer for the NPV, almost all the marks in this section are for your work. Make sure you write it in such a way that the TA can follow your thought process, and try to use the correct notation (e.g. (P/EN)) when appropriate.) . . . . ii. Consider the following situation: The present is Year/Month/Week O. The base year for inflation calculations is also Year/Month/Week O. Sam's nominal MARR is 2.45% per year. Inflation is equal to the yearly inflation you calculated above. (You can find the equivalent monthly/weekly/etc. inflation using the same procedure as you would for adjusting the time scale of the MARR.) Sam has chosen to study and work in Victoria. As usual for our projects, Sam studies in Years 0, 1, 2, 3 and 4, and works starting in Year 5 and ending at the end of their working life. Sam rents a different place while studying & working, and buys groceries every week. Rent in Victoria is constant in real terms, at its baseline level from Project 1. (So if your baseline rent was $1,000 a month, rent will always be $1,000 in real terms.). In particular: o Rent while studying is constant in real terms, at its baseline level. o Rent while working is constant in real terms, at its baseline level. The price of food in Victoria is constant in real terms, at its baseline level. Sam's salary is paid once per year, at the start of the year, starting in Year 5. The last payment is in the last year of their working life. Their first salary payment is equal, in nominal terms, to the baseline salary payment from Project 1. So if that was $50,000 a year, in Year 5, Sam is handed over $50,000 in cash. Sam's salary goes up by 5% a year in nominal terms. Hint: Nominal = Real in the base year for inflation calculations. And since that also happens to be the present (time 0)... Calculate the net present value of living, studying and working in Victoria. Show your work. . . . . . 3 Statistics Canada. Table 18-10-0005-01 Consumer Price Index, annual average, not seasonally adjusted 14 Present value of living, studying & working in Victoria: $ Work: (Important note: Since every student will have a different numerical answer for the NPV, almost all the marks in this section are for your work. Make sure you write it in such a way that the TA can follow your thought process, and try to use the correct notation (e.g. (P/EN)) when appropriate.)
