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Suppose You Have Savings Deposited in an Account at an Interest

question 126

Essay

Suppose you have savings deposited in an account at an interest rate of 4 percent and your father tells you he earned 8 percent 10 years ago.Use the concept of the real interest rate to answer the following questions.
(A)Which of you got a better return? Is this all the information you need?
(B)Suppose the rate of inflation was 5 percent 10 years ago and it is now 3 percent.Does this information change your answer?


Definitions:

Property, Plant, Equipment

Tangible long-term assets used in the operation of a business, such as buildings and machinery.

Automobile Dealership

A business that sells new or used cars at the retail level, typically based on a dealership contract with an automaker or sales subsidiary.

Land Improvements

Enhancements to a plot of land such as landscaping, fencing, and utilities, which increase the property's value.

Graded Land

Land that has been leveled or sloped to prepare it for construction, landscaping, or other specific purposes.

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