(assuming 2.5% inflation: 53.50/1.0256)
The question I am answering is, how much money do you need to have today to have $60 in 6 years' time? You need much less than $46, because you can get at least 4.85% if you buy US treasury bonds. That is 33% over 6 years. So if you buy $40.27 in 6-year bonds today you'll have $53.50 in 6 years' time.
Now, you are right that, adjusted for inflation, that is $46 today. So, investing $40 today you can make the equivalent of $46 of today's money in 6 years. tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
Indeed. The question I was trying to answer was: What is the real price, in 2005 dollars, predicted by the futures market? And the answer to that question must be to adjust for inflation but not for interest.
The result then is that the market really expects oil to drop (gradually) 25% in six years, not the 10% that the raw numbers imply.
It looks paradoxical to me and I don't quite know how to resolve it. Both numbers are right for what they calculate, but notice that someone said upthread that the stock market is pricing oil stocks as if the long-term price of oil were $40. Maybe there's something there. tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
