Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Chapter 11, Problem 28P
(a):
To determine
Calculate the real
(b):
To determine
Selection of the alternative.
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You are a saver, and you deposit your savings in your savings account
at your local bank. The bank promises a nominal interest rate on your
savings of 2.10%. You expect an inflation rate of 1.25% over the next
year. Based on this information, what is the real interest rate that you
want to receive?
1.25%
0.85%
2.10%
3.35%
-0.85%
Cost of a medical treatment after one year is $100,000. The real discount rate is 5%. The economy has an inflation rate of 6% for next one year. Use the inflation adjusted discount rate to compute the present value of the $100,000.
Suppose Neha is a cinephile and buys only movie tickets. Neha deposits $3,000 in a bank account that pays an annual nominal interest rate of 10%.
Assume this interest rate is fixed-that is, it won't change over time. At the time of her deposit, a movie ticket is priced at $15.00.
Initially, the purchasing power of Neha's $3,000 deposit is
movie tickets.
For each of the annual inflation rates given in the following table, first determine the new price of a movie ticket, assuming it rises at the rate of
inflation. Then enter the corresponding purchasing power of Neha's deposit after one year in the first row of the table for each inflation rate. Finally,
enter the value for the real interest rate at each of the given inflation rates.
Hint: Round your answers in the first row down to the nearest movie ticket. For example, if you find that the deposit will cover 20.7 movie tickets,
you would round the purchasing power down to 20 movie tickets under the assumption that Neha will not buy…
Chapter 11 Solutions
Contemporary Engineering Economics (6th Edition)
Ch. 11 - Prob. 1PCh. 11 - Prob. 2PCh. 11 - Prob. 3PCh. 11 - Prob. 4PCh. 11 - Prob. 5PCh. 11 - An annuity provides for 10 consecutive end-of-year...Ch. 11 - Prob. 7PCh. 11 - Prob. 8PCh. 11 - Prob. 9PCh. 11 - Prob. 10P
Ch. 11 - Prob. 11PCh. 11 - Prob. 12PCh. 11 - Prob. 13PCh. 11 - Prob. 14PCh. 11 - Prob. 15PCh. 11 - Prob. 16PCh. 11 - Prob. 17PCh. 11 - Prob. 18PCh. 11 - Prob. 19PCh. 11 - Prob. 20PCh. 11 - Prob. 21PCh. 11 - Prob. 22PCh. 11 - Prob. 23PCh. 11 - Prob. 24PCh. 11 - Prob. 25PCh. 11 - Prob. 26PCh. 11 - Prob. 27PCh. 11 - Prob. 28PCh. 11 - Prob. 29PCh. 11 - Prob. 30PCh. 11 - Prob. 31PCh. 11 - Prob. 1STCh. 11 - Prob. 2STCh. 11 - Prob. 3ST
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