magine that the interest rate on your savings account is positive and there is no inflation rate. Assume you inherit ₱10,000 today and you deposit it into a savings account and your friend inherits ₱10,000 3 years from now. Who is richer because of the inheritance?
magine that the interest rate on your savings account is positive and there is no inflation rate. Assume you inherit ₱10,000 today and you deposit it into a savings account and your friend inherits ₱10,000 3 years from now. Who is richer because of the inheritance?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Imagine that the interest rate on your savings account is positive and there is no inflation rate. Assume you inherit ₱10,000 today and you deposit it into a savings account and your friend inherits ₱10,000 3 years from now. Who is richer because of the inheritance?
A. I am
B. My friend
C. They are equally rich
Expert Solution
Step 1
Due to interest rate money grow with time but due to the inflation the value of money decreases with increase in inflation and real value of money decreases with inflation.
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