Asked by ethan battista on May 14, 2024
Verified
The first column of the following table describes the price movement of AOL Corporation stock over a five-year period. The second column gives the period's consumer price index. Calculate the real value of the stock for each time period using year 5 as the base year. If you purchased $1,000 worth of AOL Corporation in year 1, what has happened to the purchasing power of your original $1,000 investment when you sell the stock in year 5?
AOL Corporation
An American web portal and online service provider, which historically offered a branded internet service that allowed users to connect to the internet and access its own network of content.
Consumer Price Index
The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, used to estimate inflation.
Purchasing Power
The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy.
- Determine and explain the true value of goods and investments across different periods, taking inflation into account.
- Use consumer price index (CPI) data to compare costs and purchasing power across different times and locations.
Verified Answer
MC
Meesha ChaudhariMay 18, 2024
Final Answer : 
The real value of a year 1996 dollar in 2000 is 
I would have bought 250 shares of AOL at 1996 prices (ignoring transaction costs) with the $1,000. The value of the stock in the year 2000 is 
The change in my purchasing power is 
That is, my purchasing power from investing in the stock rises by 1,409%.
The real value of a year 1996 dollar in 2000 is I would have bought 250 shares of AOL at 1996 prices (ignoring transaction costs) with the $1,000. The value of the stock in the year 2000 is The change in my purchasing power is That is, my purchasing power from investing in the stock rises by 1,409%.
Learning Objectives
- Determine and explain the true value of goods and investments across different periods, taking inflation into account.
- Use consumer price index (CPI) data to compare costs and purchasing power across different times and locations.