Inflation is running at 2.4% per year when you deposit $11,000 in an account earning 6.5% per year compounded quarterly. In constant dollars, how much money will you have 4 years from now Round your answer to the nearest cent. [Hint: First calculate the value of your account in 4 year's time, and then find its present value based on the inflation rate.]
A)$12,965.96
B) $12,921.51
C) $12,947.97
D) $12,937.97
E) $12,870.38

Question

Inflation is running at 2.4% per year when you deposit $11,000 in an account earning 6.5% per year compounded quarterly. In constant dollars, how much money will you have 4 years from now  Round your answer to the nearest cent. [Hint: First calculate the value of your account in 4 year's time, and then find its present value based on the inflation rate.]
A)$12,965.96
B) $12,921.51
C) $12,947.97
D) $12,937.97
E) $12,870.38

Quizplus · Accepted Answer

First, we need to calculate the future value of the deposit after 4 years. Since the interest is compounded quarterly, the deposit will grow to:

FV = 11000*(1 + (0.065/4))^(4*4) = 14376.14

Next, we need to find the present value of this amount based on the inflation rate. The formula for present value is:

PV = FV / (1 + inflation rate)^n

where n is the number of years. Plugging in the numbers:

PV = 14376.14 / (1 + 0.024)^4 = 12947.97

Therefore, the answer is C, $12,947.97.

Inflation Is Running at 2