Question

Inflation is running at 1.2% per year when you deposit $11,000 in an account earning 6% compounded monthly. In constant dollars, how much money will you have four years from now?

Answer 1

$13,316.54

Step-by-step explanation:

Data provided in the question:

Inflation rate, i = 1.2% = 0.012

Deposits = $11,000

Interest rate, r = 6% = 0.06

Time, t = 4 years

since compounded monthly, number of periods n = 12

Now,

Future value of money with the interest

= Deposits ×
`[1+ (r)/(n)]^(n.t)`

= $11,000 ×
`[1+ (0.06)/(12)]^(12*4)`

= $13,975.38

Considering the inflation,

Amount after 4 years = Future value × [1 - i ]ⁿ

= $13,975.38 × [1 - 0.012]⁴

= $13,316.54