You have $55,000 in a savings account that pays 2% interest per year.
The inflation rate that year is 3.24%.
To calculate simple interest: Principal x Rate x Time = Interest

1. How much do you make in interest in a year?

2. How much would you need to have made for your spending power to keep up with inflation in that year?

3. How much buying power did you lose in that year because of inflation?

1.The interest make in a year is $1100
2. Spending power need to make to keep up with inflation in that year is $1782.
3. Buying power lose in that year because of inflation is $682.

What is simple interest?

Simple interest is the amount charged on the principal amount with a fixed rate of interest for a time period. Simple interest calculated only on the principal amount.

The formula for the simple interest can be given as,

[tex]I=\dfrac{Prt}{100}[/tex]

Here, [tex]I[/tex] is the interest amount on the principal amount of [tex]P[/tex] with the rate of [tex]r[/tex] in the time period of [tex]t[/tex].

Total principal amount in the saving account is $55,000 and the interest rate of the amount is 2 percent per year.

The inflation rate that year is 3.24%.

1.The interest make in a year-

As total principal amount in the saving account is $55,000, the interest rat 2% and time is 1 year. Thus, put the values in the above formula to find the interest rate,

[tex]I=\dfrac{55000\times2\times1}{100}\\I=1100[/tex]

Thus, the interest make in a year is $1100.

2. Spending power need to make to keep up with inflation in that year-

As, the inflation rate that year is 3.24%. Thus, spending power need to make to keep up with inflation in that year is,

[tex]\rm SP=\dfrac{55000\times3.24\times1}{100}\\SP=1782[/tex]

Thus, the spending power need to make to keep up with inflation in that year is $1782.

3. Buying power lose in that year because of inflation-

Buying power lose in that year because of inflation is the difference of the spending power and interest generated. Thus buying power lose in that year because of inflation is,

[tex]\rm BP=1782-100\\BP=682[/tex]

Thus the buying power lose in that year because of inflation is $682.

In a savings account, amount $55,000 which pays 2% interest each year and the rate of inflation is 3.24% gives,

1.The interest make in a year is $1100

2. Spending power need to make to keep up with inflation in that year is $1782.

3. Buying power lose in that year because of inflation is $682.

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