Answer:
Kindly check explanation
Explanation:
Account balance or principal = $200,000
Interest rate per annum = 5% = 0.05
Actual inflation rate for the year = 6% = 0.06
Period = 1 year
Amount at the end of one year:
Principal × ( period + interest rate)
$200,000 × ( 1 + 0.05)
$200,000 × (1.05) = $210,000
With anticipated inflation rate of 4% :
$200,000 × ( 1 + 0.04)
$200,000 × (1.04) = $208,000
Purchasing power = $208,000
At this rate of inflation, $208,000 will buy us what $200,000 can buy today.
Excess amount = $210,000 - $208,000 = $2000
$2000 will be earned if the principal is placed in bank.
With actual inflation rate of 6% :
$200,000 × ( 1 + 0.06)
$200,000 × (1.06) = $212,000
Purchasing power = $212,000
With inflation rate of 6%, $200,000 today will be equivalent to $212,000 after one year and as such will be required to purchase the same items $200,000 can today.
Deficit amount = $210,000 - $212,000 = $(2000) deficit
