Over the past year you earned a nominal rate of interest of 10 percent on your money.The inflation rate was 5 percent over the same period.The exact actual growth rate of your purchasing power was
A)15.5%.
B)10.0%.
C)5.0%.
D)4.8%.
E)15.0%.

Question

Quizplus · Accepted Answer

The actual growth rate of purchasing power is calculated using the formula: (1 + nominal rate) / (1 + inflation rate) - 1. Substituting the given values: (1 + 0.10) / (1 + 0.05) - 1 = 0.048 or 4.8%.

Over the Past Year You Earned a Nominal Rate of Interest