Suppose once again that: the real return averages 6% per year, that you're 22 and you put
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Question:
Suppose once again that: the real return averages 6% per year, that you're 22 and you put away 1000 in a tax-exempt ISA and you won't touch the money until you're 70.
- (a)If inflation averages 2% between now and your 70th birthday, how much nominal money would you get from your investment?
- (b)What was the nominal "total interest rate" (in %) that you got over the 48 years? Was this better or worse than the rate that you got in part (b) of the previous question? (i.e. which return would you rather have?)
- (c)If you want to use up a constant real amount of the money that you saved inpart(a) each year after you retire, and you expect to live forever, how much can you consume each year?
Please explain clearly the each formula used etc
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