1. Suppose that a person invests $3,000 today at an annual interest rate of 10% for 8 years.
(a) Given an annual inflation rate of 8%, will the purchasing power in terms of today's dollars be more or less than $3,000 at the end of the 8 years?
(b) By how much (in today's dollars)?

2. Annual expenses for two alternatives have been estimated on different basis as follows:

If the average general price inflation rate is expected to be 6% per year and the real rate of interest is 9% per year, show which alternative has the least negative equivalent worth in the base period (b=0).