If You Leave the Money of $950 in the Account

question 5

Multiple Choice

If you leave the money of $950 in the account for five years and the account earns 8% compounded annually, what will the balance in the account grow to?

• A) $1,341.05
• B) $1,347.82
• C) $1,395.86
• D) $1,406.23
• E) $1,491.15

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Definitions:

Nominal Rate of Interest

The rate of interest before adjustments for inflation.

Inflation Rate

The speed at which the overall price level for goods and services increases, leading to a decline in buying power.

Purchasing Power

The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy.

Bracket Creep

A phenomenon where inflation pushes income into higher tax brackets, increasing taxation without an actual increase in real purchasing power.