The inflation-adjusted principal at the beginning of the period is $203,000. Suppose that the semiannual inflation rate for the next six-month period is 1%. What will be the inflation-adjusted principal at the end of the next six-month period?

Question

Quizplus · Accepted Answer

Using the formula for inflation-adjusted principal: 
Inflation-adjusted principal at end of period = Inflation-adjusted principal at beginning of period * (1 + inflation rate)^number of periods

We plug in the given values: 
Inflation-adjusted principal at end of period = $203,000 * (1 + 0.01)^1 = $205,030

Therefore, the answer is D.

The Inflation-Adjusted Principal at the Beginning of the Period Is