Farah invests 12 000 USD for five years in an account with a 4.5% annual interest rate compounded annually. If the average yearly rate of inflation during that time is 2.2%, what is the real value of the investment at the end of the five years? Give your answer to three significant figures.
Answers
Given : Farah invests 12 000 USD for five years in an account with a 4.5% annual interest rate compounded annually.
If the average yearly rate of inflation during that time is 2.2%,
To Find : the real value of the investment at the end of the five years
Solution:
P = 12000
R = 4.5 %
n = 5 years
A = P (1 + R/100)ⁿ
A = 12000 ( 1 + 4.5/100)⁵ = 14,954.183
average yearly rate of inflation during that time is 2.2%
Hence Equal to 100 = 100 (1 + 2.2 * 5/100) = 111
Value of 111 is 100
=> Value of 1 is 100/111
=> Value of 14,954.183 = 13,472.237
the real value of the investment at the end of the five years is 13,472.237 USD
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