Ima luckygirl recently found out that her grandfather had passed away and left h
ID: 1191770 • Letter: I
Question
Ima luckygirl recently found out that her grandfather had passed away and left her his Rocky Mountain Gold savings account. The only deposit was 75 years ago, when Ima's grandfather deposited $5000. If the account has earned an average rate of 10% and inflation has been 4%, answer the following: (A) how much money is now in the account in actual dollars? (B) express the answer to part (a) in terms of the purchasing power of dollars from 75 years ago. Ima luckygirl recently found out that her grandfather had passed away and left her his Rocky Mountain Gold savings account. The only deposit was 75 years ago, when Ima's grandfather deposited $5000. If the account has earned an average rate of 10% and inflation has been 4%, answer the following: (A) how much money is now in the account in actual dollars? (B) express the answer to part (a) in terms of the purchasing power of dollars from 75 years ago. (A) how much money is now in the account in actual dollars? (B) express the answer to part (a) in terms of the purchasing power of dollars from 75 years ago.Explanation / Answer
ans a
for AMOUNT in actual dollars,
A= P ( 1+ R)N
A= AMOUNT AFTER 75 YEARS
P= AMOUNT INVESTED OR PRINCIPAL
R= RATE OF RETURN
N= NO .OF YEARS
A= 5000 ( 1+ .10)75
=$6,359,476.86
ANS B)
PURCHASING POWER OF AMOUNT 75 YEARS AGO, THAT MEANS AMOUNT NEEDS TO BE ADJUSTED FOR INFLATION
A= P ( 1+ R)N/(1+I)N
WHERE I= RATE OF INFLATION
A=5000 ( 1+ .10)75 / (1+.04)75
=$335,676.50