Question

Suppose Eileen is an avid reader and buys only comic books. Eileen deposits $3,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed—that is, it won't change over time. At the time of her deposit, a comic book is priced at $10.00.

Required:
a. Initially, the purchasing power of Eleen's $3,000 deposit is __________ comic books.

Answer 1

300 comic books

Step-by-step explanation:

Purchasing power of money at any point in time is the quantity of goods and services that can be acquired using the stock of money at the prevailing price level.

As at the time the $3000 money was deposited, the price per book stood at $10.

Purchasing power of $3000

= $3000/$10

= 300 comic books