You invested $10,000 on January 1, 2004, at 7% interest compounded annually. You have not touched the investment since that date. You are planning to take your money and close out the investment on January 1, 2014.

a.If average inflation is 3.7%, what has been your "real" annual interest rate?

b.At the time you originally invested, there was a boat you admired costing $8,000. Over the years, boats are inflating at a rate of 7%. You were also interested in a marine navigation system costing $4,000; similar systems are dropping in price at a 2% rate. If you decide to buy one of each when you close out the account, how much will the purchases cost you?

c.How much money will you have left over (or be short) after your purchases?

ans:

20: 3.18%; $15,737 and $3,268; $666.01