Posted by nan on Sunday, February 26, 2012 at 2:02pm.
Suppose Caroline is a cinephile and buys only movie tickets. Caroline deposits $3000 in a bank acct that pays an annual interest rate of 20%. You can assume that this interest rate is fixed-that is, it won’t change over time. At the time of her deposit, a movie ticket is priced at $10.00.
Initially, the purchasing power of Caroline’s $3000.00 deposit is a. 3,000 b. 50 c. 220
d. 300 e. 200 movie tickets.
The price of a movie ticket rises at the rate of inflation. For each of the annual inflation rates in the following table, select the corresponding purchasing power of Caroline’s deposit after one year, and enter the value for the real interest rate.
HINT: Round your answers down to the nearest movie ticket. For ex: if you find that the deposit will cover 20.7 movie tickets, you would round the purchasing poser down to 20 movie tickets under the assumption that Caroline will not buy seven-tenths of a movie ticket.
If the annual inflation rate is at 0% what would be the number of tickets Caroline can purchase after one yr.
If the annual inflation rate is at 20%
If the annual inflation rate is at 25%
If the annual inflation rate is at 0% what is the real interest rate
If the annual inflation rate is at 20% what is the real interest rate
If the annual inflation rate is at 25% what is the real interest rate
When the rate of inflation is less than the interest rate on Caroline’s deposit, the purchasing power of her deposit a. falls b. remains the same c. rises over the course of the year.
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