Answer:
As a result, you will receive <u>$5,500</u> at the end of the year, but that money has a purchasing power of <u>$5,238</u>.
Explanation:
At the end of the year, you will receive $5,000 x (1 + 10%) = $5,000 x 1.1 = $5,500. That is basically the future value of your money.
But in order to determine the purchasing power of that money, we must determine its present value using the inflation rte as our discount rate:
present value = future value / (1 + r) = $5,500 / 1.05 = $5,238.10 ≈ $5,238