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Sagot :
Answer:
Interest earned= $200
Step-by-step explanation:
Giving the following information:
Initial investment= $20,000
Interest rate= 3%
Inflation rate= 2%
First, we need to calculate the real interest rate. The inflation rate decreases the value of money through time. We need to deduct from the interest rate, the inflation rate.
Real interest rate= 0.03 - 0.02= 0.01
Now, we can calculate the interest earned in year 1:
Interest earned= PV*(1+i)^n - PV
Interest earned= 20,000*(1.01^1) - 20,000
Interest earned= $200
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