Question 1118880
the investment is 10,000 pesos.


it has to be repaid in 5 years in one lump sum at 12% compounded annually.


the rate of inflation is 3% compounded annually.


the profit in present day pesos would be 10,000 * 1.12^5 / 1.03^5.


this is equal to a future value of 15,202.11417.


the profit is that minus 10,000 = 5,102.11417 in today's pesos.


without inflation, the future value would have been 10,000 * 1.12^5 = 17,623.41683.


however, what cost 1.00 today, costs 1.00 * 1.03^5 = 1.159274074 in five years.


therefore, the buying power of 17,623.41683 in today's pesos. is equal to that divided by 1.159274074 = 15,202.11417.


the profit is therefore only 5,202.11417 in today's pesos.