5. Interest, inflation, and purchasing power Suppose Kyoko is an avid reader and buys only comic books. Kyoko deposits $

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5 Interest Inflation And Purchasing Power Suppose Kyoko Is An Avid Reader And Buys Only Comic Books Kyoko Deposits 1 (37.28 KiB) Viewed 60 times

5. Interest, inflation, and purchasing power Suppose Kyoko is an avid reader and buys only comic books. Kyoko deposits $2,000 in a bank account that pays an annual nominal interest rate of 15%. Assume this interest rate is fixed-that is, it won't change over time. At the time of her deposit, a comic book is priced at $20.00. Initially, the purchasing power of Kyoko's $2,000 deposit is comic books. For each of the annual inflation rates given in the following table, first determine the new price of a comic book, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Kyoko's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates. Hint: Round your answers in the first row down to the nearest comic book. For example, if you find that the deposit will cover 20.7 comic books, you would round the purchasing power down to 20 comic books under the assumption that Kyoko will not buy seven-tenths of a comic book. Annual Inflation Rate 0% 15% 18% Number of Comics Kyoko Can Purchase after One Year HI 40 Real Interest Rate over the When the rate of inflation is greater than the interest rate on Kyoko's deposit, the purchasing power of her deposit course of the year.