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andreev551
1 month ago
13

You have had $5,500 in a Roth IRA account for 3 years earning 1.2% annual interest. During those 3 years, the rate of inflation

was 1.8% per year. Did the purchasing power of your Roth IRA dollars increase or decrease over 3 years.
Business
1 answer:
marusya05 [3K]1 month ago
8 0

Answer:

Decrease in purchasing power =$(96.67)

Explanation:

To determine the alteration in purchasing power, we assess the value of the IRA after three years relative to its worth considering prices from three years ago.

The value of $5,500 after three years equals 5,500 × 1.012^3 = 5700.385

The purchasing power of $5,700.38 based on past prices for three years earlier

=5700.385504 × 1/(1.018^3)

= $5403.32

Change in purchasing power =  $5403.32 -  $5,500= $(96.67)

Decrease in purchasing power =$(96.67)

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