document.write( "Question 1187476: A man deposits P50, 000 in a bank account at 6% compounded monthly for 5 years. If the inflation rate of 6.5% per year continues for this period, will this effectively protect the purchasing power of the original principal?
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Algebra.Com's Answer #818447 by ikleyn(52788) $\"\"$ $\"About$

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\n" ); document.write( "A man deposits P50, 000 in a bank account at 6% compounded monthly for 5 years.
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document.write( "To answer this question, it is NOT NECESSARY to analyse the 5-years time period.\r\n" );
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document.write( "It is quite enough to look what will happen at the end of the first year.\r\n" );
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document.write( "Compounding monthly will produce at the end of the first year the value of\r\n" );
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document.write( "     = 53,083.89  dollars\r\n" );
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document.write( "(the growing effective multiplicative factor is   = 1.061678, rounded).\r\n" );
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document.write( "Inflation with the annual rate of 6.5% will make $50,000  equivalent to  \r\n" );
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document.write( "     = 53250  dollars\r\n" );
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document.write( "at the end of the first year (the growing effective multiplicative factor is  (1+0.065) = 1.065).\r\n" );
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document.write( "Comparing these values, you conclude that the inflation OVERTAKES the compounding account.\r\n" );
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