Assume you have won a lottery prize of $5,000, which works out great since you want to buy a new gaming PC that costs $5,500. You decide to save the lottery winnings for one year by purchasing a bank CD with one year until maturity. The interest rate on your deposit is 12% and inflation is expected to be 8% over the next year. You plan to work part-time to make up any shortfall in your savings covering the cost of the gaming PC one year from now. a. How much money will you have in your bank account at the end of one year? b. What is the real interest rate you expect to earn on your deposit over the next year? c. Will you have enough money from the savings to buy the PC next year? d. If your answer to c. is no, how many hours of work @ $15/hour will be required to make up the shortfall?
Assume you have won a lottery prize of $5,000, which works out great since you want to buy a new gaming PC that costs $5,500. You decide to save the lottery winnings for one year by purchasing a bank CD with one year until maturity. The interest rate on your deposit is 12% and inflation is expected to be 8% over the next year. You plan to work part-time to make up any shortfall in your savings covering the cost of the gaming PC one year from now.
a. How much money will you have in your bank account at the end of one year?
b. What is the real interest rate you expect to earn on your deposit over the next year?
c. Will you have enough money from the savings to buy the PC next year?
d. If your answer to c. is no, how many hours of work @ $15/hour will be required to make up the shortfall?
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