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# What is the real increase in value if \$2,500 is invested for one year at 7%...

What is the real increase in value if \$2,500 is invested for one year at 7% interest and the rate of inflation during that time is 2.1%

 Nominal rate of interest 7% Inflation rate 2.10% Real rate of return = (1+Nominal rate) /(1+Inflation rate) -1 1.07 /1.021 - 1 =4.80% Amount invested = 2500 Amount after one year = Amount invested (1+reat rate) 2500 *1.048 = 2620 Real increase in value = 2620-2500 =120

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