Bank account currently pays interest at rate

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Reference no: EM131173924

A bank account currently pays interest at a rate of 3% per year. The current inflation rate is 2% per year.

a) If I invest some money in the bank account, then what is the real interest rate that I am earning?

b) I open a new account today, deposit $10,000, and do not expect to make any deposits or withdrawals for the next two years. What will be my account balance at the end of two years expressed in

Then-current dollars

Constant dollars

c) If I decide to withdraw the entire balance in my account and close the account at the end of the two-year period, how much money will I actually get in my hand?

Reference no: EM131173924

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