1. Assume you received $500 for your birthday today and placed it in your no-interest checking account for safekeeping. Determine the purchasing power 3 years in the future if (a) f = 3.5% per year, and (b) f = 10% per year. (Round answers to the nearest dollar.) (c) How much more dollar purchasing power was lost with the higher inflation rate?

• Increase in cost due to inflation = ((1 + f)n 1) 100%
• Decrease in purchasing power due to inflation = [1 (1(1 + f)n)] 100%