7-9 Inflation Example You own a lease that will cost you $8,000 next year, increasing at 3%o a year(the forecasted inflation rate) for 3 additional years(4 years total). If discount rates are 10% what is the present value cost of the lease? 1 real interest rate 1+ nominal interest rate 1+inflation rate Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001©The McGraw-Hill Companies, Inc.,2001 7- 9 Irwin/McGraw-Hill Inflation Example You own a lease that will cost you $8,000 next year, increasing at 3% a year (the forecasted inflation rate) for 3 additional years (4 years total). If discount rates are 10% what is the present value cost of the lease? 1 + real interest rate = 1+nominal interest rate 1+inflation rate