Question

Suppose Diamond is a sports fan and buys only football tickets. Diamond deposits $2,000 into a savings account that pays an annual nominal interest rate of 10%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a football ticket has a price of $20.00.

Initially, Diamond's $2,000 deposit has a purchasing power of _____ football tickets.

Answer 1

Initially, Diamond's $2,000 deposit has a purchasing power of 100 football tickets at the price of $20 each.

Step-by-step explanation:

The student's question involves calculating the initial purchasing power of a $2,000 deposit into a savings account that pays an annual nominal interest rate of 10%, specifically in terms of football tickets priced at $20.00 each. To find this, we must first understand that purchasing power refers to the quantity of goods or services that a given amount of money can buy at present. In this case, without considering any interest accumulation, the initial deposit can be divided by the price of one football ticket to determine how many tickets can be purchased.

$2,000 ÷ $20.00 = 100 football tickets

Therefore, initially, Diamond's $2,000 deposit has a purchasing power of 100 football tickets.