Question

An engineer deposits $25,000 into an account when the market interest rate is 8% per year and the inflation rate is 3% per year. The account is left undisturbed for 15 years.

The purchasing power of the accumulated dollars in terms of today’s dollars is closest to:

Solution calculated with interest factor with 4 decimal places.

Question 19 options:

	$79,305
	$16,046
	$40,161
	$50,902

Answer 1

Ans: $50,902

Explanation:

FV = P(1 + i)ⁿ

     = 25000(1 + 0.08)¹⁵

     = 79,304.2278

Purchasing power = 79,304.2278 / (1 + 0.03)¹⁵

                              = 79,304.2278 / 1.55797

                              = $50,902