You have had $5,500 in a Roth IRA account for 3 years earning 1.2% annual interest. During those 3 years, the rate of inflation was 1.8% per year. Did the purchasing power of your Roth IRA dollars increase or decrease over 3 years.

Loss in purchasing power = $ (96.67)

Explanation:

To determine the change in purchasing power, we will compare the value of the IRA after 3 years to its purchasing power in term the prices there years ago.

The value of 5,500 in 3 years time = 5,500 * 1.012^3 = 5700.385

The purchasing power of 57,000.38 in term's of the price 3 years ago

=5700.385504 * 1 / (1.018^3)

= $5403.32

Change in purchasing power = $5403.32 - $5,500 = $ (96.67)

Loss in purchasing power = $ (96.67)