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3241004551 [841]
3 years ago
13

Question Suppose you have $200,000 in a bank term account. You earn 5% interest per annum from this account. You anticipate that

the inflation rate will be 4% during the year. However, the actual inflation rate for the year is 6%. Calculate the impact of inflation on the bank term deposit.
Business
1 answer:
Vanyuwa [196]3 years ago
6 0

Answer:

Deposited amount will decrease by 1% and $2,000

Explanation:

Inflation rate will effect the value of money due to decrease in purchasing power of the currency holder.

We will use following formula to calculate the impact

Nominal rate = Real interest rate + Inflation rate

5% = Real interest rate + 6%

Real interest rate = 5% - 6% = -1%

The deposited amount will be decreased by 1%.

Deposit value = $200,000 x ( 1 - 1% ) = $198,000

Decrease in value = $200,000 - $198,000 = $2,000

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