Question

Whats the correct answer to part b?

a. If the interest rate is 5.4% per year, approximately how long will it take for your money to quadruple in value? (Use the Rule of 72. Round your answer to 2 decimal places.) Number of years 26.67 b. If the inflation rate is 3.7% per year, what will be the change in the purchasing power of your money over this period? (Use the Rule of 72 to compute the number of years. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Purchasing power decreases by 50.69 $ %

Answer 1

a.

4 = 1(1.054)^t

Using Log,

t = log(4)/log(1.054)

t = 26.36 years

b.

Increases;

Real Rate = 0.054 - 0.037 = 1.7%

Value = 1(1.017)^26.36

Value = 1.5595

Increase = 55.95%