Answer:
The purchasing power of investment = 1% or $100
Step-by-step explanation:
Given : Amount invested=$3,000 ,last year interest rate 5% and this year interest rate 4%
Using formula : [tex]A=P(1+r)^t[/tex]
where,
P = principal amount = 3,000
[tex]r_1[/tex] = annual rate of interest last year = 5%= 5/100=0.05
[tex]r_2[/tex] = annual rate of interest this year = 4%= 4/100=0.04
t = number of years the amount is deposited =1
A = amount of money accumulated have to find
→ Amount of last year (r=0.05)
[tex]A_1=P(1+r_1)^t[/tex]
[tex]A_1=3000(1+0.05)^1[/tex]
[tex]A_1=300(1.05)[/tex]
[tex]A_1=3150[/tex]
→ Amount of this year (r=0.04)
[tex]A_2=P(1+r_2)^t[/tex]
[tex]A_2=3000(1+0.04)^1[/tex]
[tex]A_2=300(1.04)[/tex]
[tex]A_2=3120[/tex]
Now, Purchasing power of investment - The base year’s CPI and divide it by the target year’s CPI, then multiply your answer by 100 is the purchasing power.
which means Purchasing power = [tex]\frac{A_1}{A_2}\times 100[/tex]
= [tex]\frac{3150}{3120}\times 100[/tex]
= [tex]1.009\times 100[/tex]
= 100
Therefore, the purchasing power of investment = 1% or $100
