Posted by **liz c ** on Saturday, November 13, 2010 at 9:46pm.

Inflation is running 2% per year when you deposit $1000 in an account earning interest of 13% per year compounded annually. In constant dollars, how much money will you have two years from now? (Hint: First calculate the value of your account in two years' time, and then find its present value based on the inflation rate. Round your answer to the nearest cent.)

$ 1

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**Reiny**, Saturday, November 13, 2010 at 9:53pm
The instructions in your questions tell you how to do it.

Give it a try.

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**liz c **, Saturday, November 13, 2010 at 10:16pm
first part?1276.9

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**liz c **, Saturday, November 13, 2010 at 10:18pm
final answer?1225.82?

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**Reiny**, Saturday, November 13, 2010 at 10:28pm
first part:

1000(1.13)^2 = 1276.90

You are right.

Second part:

1276.90(.98)^2 = 1226.33

One step calculation:

1000(.98)^2(1.13)^2 = 12236.33

How did you get 1225.82 ?

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**liz c **, Saturday, November 13, 2010 at 10:40pm
I multipied first part times .02 and subtracted that twice

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**liz c **, Saturday, November 13, 2010 at 10:41pm
wheres the .98 from?

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**liz c **, Saturday, November 13, 2010 at 10:47pm
the answer was wrong

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**Reiny**, Saturday, November 13, 2010 at 10:48pm
Just like when money increases by 1+i,

when the money decreases you would take 1-i

in this case i = .02

so value(1-.02)^2

when the rate was 13% did you not take 1 + .13 ?

suppose we do it step by step

start with 1000

that loses 2% so amount left = .98(1000) = 980

that gains 13%, so 980(1.13) = 1107.40

that loses 2% , so amount left = 1107.4(.98) = 1085.25

which gains 13% , 1085.25(1.13) = 1226.33

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**Reiny**, Saturday, November 13, 2010 at 10:52pm
you said you multiplied your answer by 2% and then subtracted it twice ...

let's try that

2% of 1276.90 = 25.54

leaving 1251.36

2% of 1251.36 = 25.03

subtracting that leaves 1226.33

Well, well, what do you say now?

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**liz c **, Saturday, November 13, 2010 at 10:56pm
i put that answe ina and it was wrong

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