Question

17.3 Assume that the nominal interest rate is 10% per year and that the rate of inflation is 5% per year. Round all your answers as appropriate. (a) You put $100 in the bank today. How much will be in your account after 10 years? (b) You can buy an apple fritter (a type of donut) for $1 today. The price of donuts goes up at the rate of inflation. How much will an apple fritter cost after 10 years? (c) Calculate $x$, the number of apple fritters you could buy for $100 today. Then calculate $y$, the number of apple fritters you could buy after ten years if you put that $100 in the bank. Finally, calculate $z = 100 \cdot \frac{y}{x}$. (The deal with $z$ is that you can say, "If I put my money in the bank, then after ten years I will be able to buy $z$% more apple fritters.") (d) Given the nominal interest rate and inflation rate above, calculate the real interest rate to two significant digits (e.g., "3.81%"). Check your answer with the "rule of thumb" approximation. (e) Calculate how much money you'd have after 10 years if you put $100 in the bank today at the real interest rate you calculated in the previous question (17.3d). Compare your answer here with the result from question 17.3c.

          17.3 Assume that the nominal interest rate is 10% per year and that the rate
of inflation is 5% per year. Round all your answers as appropriate.
(a) You put $100 in the bank today. How much will be in your account
after 10 years?
(b) You can buy an apple fritter (a type of donut) for $1 today. The
price of donuts goes up at the rate of inflation. How much will an
apple fritter cost after 10 years?
(c) Calculate \(x\), the number of apple fritters you could buy for $100
today. Then calculate \(y\), the number of apple fritters you could buy
after ten years if you put that $100 in the bank. Finally, calculate
\(z = 100 \cdot \frac{y}{x}\). (The deal with \(z\) is that you can say, "If I put my
money in the bank, then after ten years I will be able to buy \(z\)% 
more apple fritters.")
(d) Given the nominal interest rate and inflation rate above, calculate
the real interest rate to two significant digits (e.g., "3.81%"). Check
your answer with the "rule of thumb" approximation.
(e) Calculate how much money you'd have after 10 years if you put
$100 in the bank today at the real interest rate you calculated in the
previous question (17.3d). Compare your answer here with the result
from question 17.3c.

17.3 Assume that the nominal interest rate is 10% per year and that the rate
of inflation is 5% per year. Round all your answers as appropriate.
(a) You put 100 in the bank today. How much will be in your account
after 10 years?
(b) You can buy an apple fritter (a type of donut) for1 today. The
price of donuts goes up at the rate of inflation. How much will an
apple fritter cost after 10 years?
(c) Calculate x, the number of apple fritters you could buy for 100
today. Then calculate y, the number of apple fritters you could buy
after ten years if you put that100 in the bank. Finally, calculate
z = 100 ·(y)/(x). (The deal with z is that you can say, "If I put my
money in the bank, then after ten years I will be able to buy z%
more apple fritters.")
(d) Given the nominal interest rate and inflation rate above, calculate
the real interest rate to two significant digits (e.g., "3.81%"). Check
your answer with the "rule of thumb" approximation.
(e) Calculate how much money you'd have after 10 years if you put
100 in the bank today at the real interest rate you calculated in the
previous question (17.3d). Compare your answer here with the result
from question 17.3c.

Added by Hector B.

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