Question: (A.) If the nominal interest rate is 1% per year and the inflation is 3% per year, what is the growth rate in purchasing power

(A.) If the nominal interest rate is 1% per year and the inflation is 3% per year, what is the growth rate in purchasing power (also referred to as the real interest rate)?

(B.) If an investor hopes to earn a real rate of 5% per year, with an inflation of 15% per year, what nominal rate of return is needed?

(C.) James is saving for retirement and has determined that to live comfortably he must save $3 million by his 65th birthday. Matt just turned 30 today, and he has decided that starting today and continuing on every birthday up to and including his 65th birthday, he will deposit the same amount into an IRA. If James can earn a nominal rate of 8% on his IRA, then the amount he must set aside each year to make sure that he will have $3 million in his account on his 65th birthday is?

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