Blipton International

No. By saying that property values rise by 8% it is meaning that the inflation applying to property is 8% (and is higher than the general inflation rate of 2.5%). Everything else will inflate at 2.5%, but property is expected to inflate at a higher rate of 8%.

In general doesn't "in real terms" mean "without the effect of inflation" ?

Yes it does. But although the general rate of inflation is 2.5% it does not mean everything inflates at the same rate. In this question you are told that property inflates at 8% (not 2.5%).

thanks again John

You are welcome :-)

Hello sir, hope you r well. Regarding this question when calculating the MIRR,the pv of the return phase in the year 20X9 is 9731 in the bpp revision kit. I failed to understand hw this figure is arrived at. Kindly elaborate. Thanks

It is a mistake - they should have used 8719.61 (from the earlier workings). What happened is that the examiners own answer to the question had a mistake in it (to do with the terminal value of the hotel). So BPP corrected his answer in the Revision Kit, but managed to then make the mistake of putting 9731 instead of 8720 :-)

Hi Sir Return Phase : how do we arrive to the Nominal cashflows 20.5 = 54.63

The real cash flow (i.e. without inflation) in 20X5 is 52. The nominal (actual) cash flow is the real flow inflated at 2.5% for 2 years. 52 x 1.025^2 = 54.63