5. Interest, inflation, and purchasing power Suppose Simone is a sports fan and buys oniy baseball caps. Simone deposits $4,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is xedthat is, it won't change over time. At the lime of her deposit, a baseball cap is priced at $10.00. Initially. the purchasing power of Simone's $4.000 deposit is baseball caps. For each of the annual ination rates given in the following table, first detem'iine the new price of a baseball cap, assuming it rises at the rate of ination. Then enter the corresponding purchasing power ofSimone's deposit after one year in the first row of the table for each infra tion rate. Fina-Hy, enter the value for the real interest rate at each of the given ination rates. Hint: Round your answers in the rst row down to the nearest baseball cap. For example, if you nd that the deposit will cover 20.? baseball caps, you would round the purchasing power down to 20 baseball caps under the assumption that Simone will not buy seventenths of a baseball cap. Annual Ination Rate 0% 5% 8% Number of Caps Simone Can Purchase after One Year V V v Real Interest Rate %| | %| | "it when the rate of ination is less than the interest rate on Simone's deposit, the purchasing power of her deposit v over the course of the year