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Five years ago, an industrial engineer deposited $25,000 into an account and left it undisturbed until now. The account is now worth $45,000. No cash flow diagram required. (a) What market annual interest rate was earned in the account during the 5 years? (b) If the inflation over that period was 5% per year, what was the real interest rate? (c) What is the purchasing power of the $45, 000 now compared to the purchasing power 5 years ago? In other words, how much would you have paid 5 years ago for goods that cost $45,000

Five years ago, an industrial engineer deposited $25,000 into an account and left it undisturbed until now. The account is now worth $45,000. No cash flow diagram required. (a) What market annual interest rate was earned in the account during the 5 years? (b) If the inflation over that period was 5% per year, what was the real interest rate? (c) What is the purchasing power of the $45, 000 now compared to the purchasing power 5 years ago? In other words, how much would you have paid 5 years ago for goods that cost $45,000

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Five years ago, an industrial engineer deposited $25,000 into an account and left it undisturbed until now. The account is now worth $45,000. No cash flow diagram required. (a) What market annual interest rate was earned in the account during the 5 years? (b) If the inflation over that period was 5% per year, what was the real interest rate? (c) What is the purchasing power of the $45, 000 now compared to the purchasing power 5 years ago? In other words, how much would you have paid 5 years ago for goods that cost $45,000 today?
Transcribed Image Text:Five years ago, an industrial engineer deposited $25,000 into an account and left it undisturbed until now. The account is now worth $45,000. No cash flow diagram required. (a) What market annual interest rate was earned in the account during the 5 years? (b) If the inflation over that period was 5% per year, what was the real interest rate? (c) What is the purchasing power of the $45, 000 now compared to the purchasing power 5 years ago? In other words, how much would you have paid 5 years ago for goods that cost $45,000 today?
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