Question

Over the past year, you earned a nominal rate of interest of 10% on your money. The inflation rate was 5% over the same period. The exact actual growth rate of your purchasing power was____________.

Answer 1

Answer:

exact actual growth rate of your purchasing power was 4.8%

Explanation:

given data

nominal rate of interest = 10%

inflation rate =  5%

solution

we get here exact actual growth rate that is express as

exact actual growth rate = $\frac{1+rate\ of\ interest}{1+inflation\ rate} - 1$      ..........................1

put here value and we will get

exact actual growth rate = $\frac{1+0.10}{1+0.05} - 1$

exact actual growth rate = 4.8 %

so here exact actual growth rate of your purchasing power was 4.8%