Question

5. Interest, inflation, and purchasing power Suppose Megan is a cinephile and buys only movie tickets, Megan deposits $4,000 in a bank account that pays an annual nominal interest rate of 15%. Assume this interest rate is fixed--that is, it won't change over time. At the time of her deposit, a movie ticket is priced at $20.00. Initially, the purchasing power of Megan's $4,000 deposit is movie tickets. For each of the annual inflation rates given in the following table, first determine the new price of a movie ticket, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Megan's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates. Hint: Round your answers in the first row down you would round the purchasing power down the nearest movie ticket. For example, if you find that the deposit will cover 20.7 movie tickets, tickets under the assumption that Megan will not buy seven-tenths of a movie ticket. Annual Inflation Rate 0% Year Number of Tickets Megan Real Interest Rate on Megan's deposit, the purchasing power of her deposit When the rate of inflation is less than the course of the year.

Answer 1

20 21 22 23 24 25 26 27 28 29 Initially the 1200 purchasing power of [$ 40ool movie tickets Megan's $4000 pawang deposit Annual inflation site 0% 157°18% Numbee of 230. 200. 194. tickets megan $4600 4600 4600 lan puxhase. I 20 23 2 23.6 Real interest rate. 15% 0% -3% fomula: (! nomina bat - It inflationsated