Daisy invested $50,000 in a bond that grew to a nominal value of $81,445.63 over 10 years. During this period, the CPI increased from 100 to 162.89 What happened to the real value of her investment in today's dollars? Use this formula: present value=(future value)/((future CPI)/(current CPI))
Answer
A
The real value of the investment increased despite the nominal decrease.
B
The real value of the investment remained approximately 30 dollars comma 000 when adjusted for inflation.
C
The real value of the investment remained the same, at 50 dollars comma 000.
D
The nominal value increased significantly, but the real value decreased due to inflation.
Explanation
The CPI ratio is 162.89 ÷ 100 = 1.6289. Adjust the bond’s future value for inflation: $81,445.63 ÷ 1.6289 = approximately $50,000 in today’s dollars. Therefore, the real value remained the same as Daisy’s original investment; choice C is correct.
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