You have $44,000 in a savings account that pays 2% annual interest and the inflation rate is 3.24%. how much buying power in dollars will you lose in one year because of inflation?
Accepted Solution
A:
The effective annual interest rate would be the difference
of nominal interest and inflation rate.
ieff = 2% - 3.24%
ieff = - 1.24% = -0.0124
Β
Therefore the money left after 1 year would be:
F = 44,000 * (1 β 0.0124)
F = 43,454.4
Β
So the amount of money lost is:
lost = 44,000 - 43,454.4
lost = $545.6