3) (15 points) A local credit union pays a market interest rate of 5% per year...
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3) (15 points) A local credit union pays a market interest rate of 5% per year for long-term deposits. The current inflation rate is 2% per year. a) (5 points) If I invest some money in a long-term fund at the credit union, what is the real (inflation- free) interest rate I will be earning? b) (10 points) I open a new account today, deposit $10,000, and do not expect to make any deposits or withdrawals for the next 5 years. What will be my account balance at the end of 5 years expressed in (i) Actual or Then-current dollars (ii) Real or Constant dollars 3) (15 points) A local credit union pays a market interest rate of 5% per year for long-term deposits. The current inflation rate is 2% per year. a) (5 points) If I invest some money in a long-term fund at the credit union, what is the real (inflation- free) interest rate I will be earning? b) (10 points) I open a new account today, deposit $10,000, and do not expect to make any deposits or withdrawals for the next 5 years. What will be my account balance at the end of 5 years expressed in (i) Actual or Then-current dollars (ii) Real or Constant dollars
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Answer rating: 100% (QA)
a To calculate the real inflationfree interest rate we can use the following formula Real Interest R... View the full answer
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