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

1. How much do you make in interest in a year?

2. How much would you need to have made for your spending power to keep up with inflation in that year?

3. How much buying power did you lose in that year because of inflation?

Question

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Mathematics

18 November, 17:57

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

1. How much do you make in interest in a year?

2. How much would you need to have made for your spending power to keep up with inflation in that year?

3. How much buying power did you lose in that year because of inflation?

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Answers (1)

Know the Answer?

Dennis Pham · Answer 1

The solution in each item is enumerated below:

For item#1,

Interest in a year = savings amount * interest rate * time

Interest in a year = $55,000 * 2% * 1 year

Interest in a year = $1,100

For item#2,

Amount to keep inflation = $55,000 * 3.24% * 1 year

Amount to keep inflation = $ 1,782

For item#3,

Buying power loss = $1,782 - $1,100

Buying power loss = $682