Buying power lost = (55000 * 0.0324) - (55000 * 0.02)
= 1782 - 1100
= 682
The problem was 2% is 0.02, not 0.2, so you got 17820 instead of the 1782.
I have been trying this for the past 30 minutes. Please help. I don't know what I'm doing wrong. I included my wrong answers as well for reference.
Here's an example:
What is happening with this savings account?
?You have $10,000 in a savings account that pays 2% interest per year.
?You make $200 in interest in one year.
?The inflation rate is 3.24% per year (the average between 1913 - 2011).
?You would need to have made $324 for your spending power to keep up with inflation. Oops.
Now, you try it:
?You have $55,000 in a savings account that pays 2% interest per year.
?The inflation rate that year is 3.24%.
?To calculate simple interest: Principal x Rate x Time = Interest
?How much do you make in interest in a year? $ 1100
?How much would you need to have made for your spending power to keep up with inflation in that year? $ 17820
?How much buying power did you lose in that year because of inflation? $ 55000-17820=37180
please help me... I was cruising through my homework till I got to this section.
