(Solved): 5. Interest, inflation, and purchasing power Suppose Dalton is a fan of young-adult fiction and bu ...

5. Interest, inflation, and purchasing power Suppose Dalton is a fan of young-adult fiction and buys only young-adult books. Dalton deposits \( \$ 3,000 \) into a savings account that pays an annual nominal interest rate of \( 5 \% \). Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a young-adult book has a price of \( \$ 15,00 \). Initially, Dalton's \( \$ 3,000 \) deposit has a purchasing power of young-adult books. For each of the annual inflation rates given in the following table, first determine the new price of a young-adult book, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Dalton's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates. Hint: Round your answers in the first row down to the nearest young-adult book. For example, if you find that the deposit will cover \( 20.7 \) young-adult books, you would round the purchasing power down to 20 young-adult books under the assumption that Dalton will not buy seven-tenths of youngadult book. When the rate of inflation is greater than the interest rate on Dalton's deposit, the purchasing power of her deposit over the course of the year.