You have $832.66 in a savings account that offers a 5.25% interest rate.
a. If you leave your money in that account for 20 years, how much will you have in the account?
b. Suppose that inflation is expected to run at 3.25% for the next 20 years. Use the real interest rate to calculate the inflation-adjusted amount your account will contain at the end of the 20-year period.
c. The amount you calculated in (b) is smaller than the amount you calculated in (a). Explain exactly what the amount you calculated in (b) tells you, and why the difference arises.