If you deposit $10,000 in a bank account that pays a 5% interest compounded monthly for threeyears, what would be your economic loss if the general inflation rate is 6% during that period? a. The effective annual interest rate for the deposit is 5.116 %. (Round to three decimal places.) You will lose $ 549 when the general inflation rate is 6%. (Round to the nearest dollar.)
If you deposit $10,000 in a bank account that pays a 5% interest compounded monthly for threeyears, what would be your economic loss if the general inflation rate is 6% during that period? a. The effective annual interest rate for the deposit is 5.116 %. (Round to three decimal places.) You will lose $ 549 when the general inflation rate is 6%. (Round to the nearest dollar.)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:QUESTION 4
If you deposit $10,000 in a bank account that pays a 5% interest compounded monthly for threeyears, what would be your economic loss if the general inflation rate is 6% during that period?
when the general inflation rate
%. (Round to three decimal places.) You will lose $ 549
a. The effective annual interest rate for the deposit is 5.116
is 6%. (Round to the nearest dollar.)
Expert Solution
Step 1
The effective interest rate (EIR) is the actual rate of interest earned or paid on an investment or loan, after taking into account the effects of compounding. The EIR represents the true cost or return on an investment or loan, because it takes into account not only the stated interest rate, but also the frequency of compounding.
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