An engineer planning for her son’s college education made deposits into a separate high-risk brokerage account every time she earned extra money from side consulting jobs. The deposits and their timings are as follows: Year Deposit, $ 0 5,000 3 8,000 4 9,000 7 15,000 11 16,000 17 20,000 (a) If the account increased at 15% per year and inflation averaged 3% per year over the entire period, what was the purchasing power of the money in the account in terms of year zero CV dollars immediately after the last deposit in year 17? (b) Use a spreadsheet to recalculate the purchasing power if the account actually earned 6% per year and inflation was higher than expected a 4% per year. Compare the purchasing power with the total amount deposited over the 17 years.

An engineer planning for her son’s college education made deposits into a separate high-risk brokerage account every time she earned extra money from side consulting jobs. The deposits and their timings are as follows: Year Deposit, $ 0 5,000 3 8,000 4 9,000 7 15,000 11 16,000 17 20,000 (a) If the account increased at 15% per year and inflation averaged 3% per year over the entire period, what was the purchasing power of the money in the account in terms of year zero CV dollars immediately after the last deposit in year 17? (b) Use a spreadsheet to recalculate the purchasing power if the account actually earned 6% per year and inflation was higher than expected a 4% per year. Compare the purchasing power with the total amount deposited over the 17 years.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter2: The One Lesson Of Business

Section: Chapter Questions

Problem 2.6IP

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