MindTap-Cengage Learning × e ch 11 Aplia Part 13. Comparirx C Not Secure ng.ceng

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MindTap-Cengage Learning × e ch 11 Aplia Part 13. Comparirx C Not Secure ng.cengage.com/static/nb/ui/index.html?nbld-696702&nbNodeld-217875369;&deploymentid;=56771 723025229654771 971080718eISBN-9781 337096669#!&parentid;=259677205 · MINDTAP Joshua Clymer PS 7 (Ch 15, Ch 16, Ch 17) TX Due on Nov 15 at B AM EST Back to Assignment Attempts: Keep the Highest: 3 10. Interest, inflation, and purchasing power Suppose Frances is a cinephile and buys only movie tickets. Frances 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 movie ticket is priced at $20.00. Initially, the purchasing power of Frances's $2,000 deposit is movie tickets. For each of the annuai infiation rates given in the following table, first determine the new price of a movie ticket, assuming it rises at the rate of inriation. Then enter the corresponding purchasing power of Frances's deposit after one year in the first row or the table for each inflation rate. Finaily enter the value for the real interest rate at each or the given iniation rates. Hint: Round your answers in the first row down to the nearest movie ticket. For example, if you find that the deposit will cover 20.7 movie tickets, you would round the purchasing power down to 20 movie tickets under the assumption that Frances will not buy seven-tenths of a movie ticket. Annual Inflation Rate 15%% 18% Number of Tickets Frances Can Purchase after One Year Real Interest Rate A-Z over the When the rate of infiation is geater than the interest rate on Frances's deposit, the purchasing power of her deposit course of the year Grade It Now Save & Continue Continue without saving

Explanation / Answer

1. Movie tickets that can be bought = 2000/20 = 100 tickets

2. At 0% inflation rate:

No. of tickets purchased = (2000 + 15% of 2000)/20 = (2000 + 300)/20 = 2300/20 = 115 tickets

Real interest rate = Nominal interest rate - Inflation rate = 15% - 0% = 15%

At 15% inflation rate:

No. of tickets purchased = (2000 + 15% of 2000)/(20 + 15% of 20) = (2000 + 300)/(20 + 3) = 2300/23 = 100 tickets

Real interest rate = Nominal interest rate - Inflation rate = 15% - 15% = 0%

At 18% inflation rate:

No. of tickets purchased = (2000 + 15% of 2000)/(20 + 18% of 20) = (2000 + 300)/(20 + 3.6) = 2300/23.6 = 97 tickets

Real interest rate = Nominal interest rate - Inflation rate = 15% - 18% = - 3%

3. Decreases

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