Macroeconomics 12th Edition by Rudiger Dornbusch ,Stanley Fischer,Richard Startz

Exercise 5

Go to http://research.stlouisfed.org/fred2 and click on "Categories" then "Consumer Price Indexes (CPI and PCE)". Find and download monthly data on the Consumer Price Index. Then go back to the "Categories" page and click on "Interest Rates" and "Certificates of Deposit." Find and download month interest rates for 1-month CDs.
a. Use the CPI to calculate monthly inflation rates.
b. Suppose you have $250 in January 2003, which you decide to store under your mattress. In January 2013 you finally decide to retrieve the cash from under your bed. Using the inflation rates calculated above, how much is that money worth in 2013
c. Now suppose you instead decided to invest your $250 in 1-month CDs. At the end of each month you take the principal along with the accrued interest and reinvest in another 1-month CD until January 2013. Using this strategy, how much is your money worth in 2013 (Remember to take into account inflation.)