document.write( "<A HREF=/cgi-bin/jump-to-question.mpl?question=1118880>Question 1118880</A>: <I><SPAN STYLE=\"word-break: break-all;\"> A company invests P10,000 today to be repaid in five years in one lump sum at 12% compounded annually. If the rate of inflation is 3% compounded annually, how much profit in present day pesos is realized over five years? </SPAN>\n" );
document.write( "</I><HR><TABLE width=100%><TR><TD><B><A HREF=http://www.algebra.com/>Algebra.Com's</A> Answer #734926 by </B><A HREF=/tutors/aboutme.mpl?userid=Theo><B>Theo(13342)</B></A><img src=\"/images/stars/stars-13.gif\" alt=\"\" >&nbsp;<A HREF=/tutors/aboutme.mpl?userid=Theo><IMG SRC=http://www.algebra.com/images/aboutme-small.gif BORDER=0 alt=\"About Me\" VALIGN=MIDDLE></A>&nbsp;<IMG SRC=http://www.algebra.com/cgi-bin/show-face.mpl?user=Theo><BR>You can <A HREF=\"/cgi-bin/embed-solution.mpl?show=1&solution=734926\">put this solution on YOUR website!</A><BR><SPAN STYLE=\"word-break: break-all;\"> the investment is 10,000 pesos.\r<BR>\n" );
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document.write( "it has to be repaid in 5 years in one lump sum at 12% compounded annually.\r<BR>\n" );
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document.write( "the rate of inflation is 3% compounded annually.\r<BR>\n" );
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document.write( "the profit in present day pesos would be 10,000 * 1.12^5 / 1.03^5.\r<BR>\n" );
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document.write( "this is equal to a future value of 15,202.11417.\r<BR>\n" );
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document.write( "the profit is that minus 10,000 = 5,102.11417 in today's pesos.\r<BR>\n" );
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document.write( "without inflation, the future value would have been 10,000 * 1.12^5 = 17,623.41683.\r<BR>\n" );
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document.write( "however, what cost 1.00 today, costs 1.00 * 1.03^5 = 1.159274074 in five years.\r<BR>\n" );
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document.write( "therefore, the buying power of 17,623.41683 in today's pesos. is equal to that divided by 1.159274074 = 15,202.11417.\r<BR>\n" );
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document.write( "the profit is therefore only 5,202.11417 in today's pesos. \r<BR>\n" );
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document.write( " </SPAN>\n" );
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