Question: 1. The incredible shrinking $50 bill in 1957 was worth $50, but in 2007 it is worth only $6.58. (8.2)
a. What was the compounded average annual inflation rate (loss of purchasing power) during this period of time?
b. Fifty dollars invested in the stock market in 1957 was worth $1,952 in 2007. In view of your answer to Part (a), what was the annual real interest rate earned on this investment?
2. Suppose the cost of electricity is expected to increase at the rate of 6% per year. How will this new information change your recommendation? Use the original eight-year study period in your analysis.