How to calculate the Inflation / Real cash flow

Описание: Meet Tom, he has just invested 10000 dollars in a share. He wants to hold this investment for one
year and collect the 10 percent return on his investment for one year.
He thinks about what he will do with the 11,000 dollars, but his friend, points out to him the
inflation, that is, the increase in the price level.
This amounts to 4 percent per year.
To calculate the impact of inflation on Tom's investment, we need the final capital Cn and the
inflation i.
This looks like this. Cn over one plus the inflation rate. Tom fills in his values. 11000 dollars over one
plus 0.04.
The result is 10576.92 dollars. So, Tom only makes a profit of 577 dollars. He wonders how much of a
real return rate that really is.
For this, we require the interest rate r that Tom expects, 10 percent, and the inflation rate i of 4
percent.
The formula looks like this. One plus r over one plus i.
Tom enters all the values, which looks like this. He gets 1.0576. So, his real return rate is 5.76 percent
instead of 10 percent.
A little dejected, Tom looks for what he can buy for his scant $500 profit. He wants a new mobile
phone, but it costs 1200 dollars.
So, he looks for new investments. He wants to invest 10,000 dollars again for one year, but this time
he takes more risk with a foreign investment.
This investment offers an interest rate r of 15 percent, but the inflation rate i is also higher here, at 9
percent.
Help Tom to find out whether he can afford the new mobile phone for 1200 dollars after this
investment.
Solutions in the Video Description.