Question

b. If the inflation rate is 4.8% 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.)

b. If the inflation rate is 4.8% 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 increases by

Answer 1

Solving b). Since, Inflation is 4.8% per year over the period the money Quadruple, calculating the purchasing power of money over this period:

Increase in Purchasing power

= ( 1+ Nominal Rate 1+ Inflation Rate

where, n = No of years = 18.95

Nominal Rate = 7.6%

Inflation rate = 4.8%

Increase in Purchasing power

= ( 1+ Nominal Rate 1+ Inflation Rate

  

1+0.076、 1+0.048 18.5

= 1.648148-1

= 0.6481 or 64.81%

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