youre considering opening a savings account and want to choose one that will actually grow your moneys…
youre considering opening a savings account and want to choose one that will actually grow your moneys value.\naccount name interest rate minimum deposit\naccount a 1.5% $100\naccount b 3% $500\naccount c 4.1% $1,000\naccount d 6% $5,000\nconsidering the current inflation rate of 3%, which account(s) would actually help your savings value grow?\nchoose all answers that apply:\na account a\nb account b\nc account c\nd account d
Answer
Explanation:
Step1: Determine real - interest rate formula
The real - interest rate formula is $r = i - \pi$, where $r$ is the real - interest rate, $i$ is the nominal interest rate, and $\pi$ is the inflation rate. Here, $\pi = 3%=0.03$.
Step2: Calculate real - interest rate for Account A
For Account A, $i = 1.5% = 0.015$. Then $r_A=0.015 - 0.03=- 0.015$.
Step3: Calculate real - interest rate for Account B
For Account B, $i = 3% = 0.03$. Then $r_B=0.03 - 0.03 = 0$.
Step4: Calculate real - interest rate for Account C
For Account C, $i = 4.1% = 0.041$. Then $r_C=0.041 - 0.03 = 0.011$.
Step5: Calculate real - interest rate for Account D
For Account D, $i = 6% = 0.06$. Then $r_D=0.06 - 0.03 = 0.03$.
Step6: Select accounts with positive real - interest rates
Accounts with positive real - interest rates will help the savings' value grow. Accounts C and D have positive real - interest rates.
Answer:
C. account C, D. account D