Inflation Worksheet 1 The price of a base model toaster oven

Inflation Worksheet 1. The price of a base model toaster oven is $20. Find the estimated future price of this toaster oven in 10 years with: a) 2% inflation b) 7% Inflation 2. Assume that the price of a base model coffee maker is $20 in 2009 and that the prices increased at the average annual rates. Using the CPI table on page 696 and the inflation proportion to find the price of this coffee maker in the year a) 2000 b) 1980

Solution

1.

P = 20$

n=10

a.

i1 = 2%

F = P(1+i)^n

F = 20 * 1.02^10

F = 24.38$

b.

i2 = 7%

F = P(1+i)^n

F = 20 * 1.07^10

F = 39.34$

2.

You have not attached CPI table given on page no.696

However formula is

a.

rate at 2000 = P * CPI@2009 / CPI@2000

b.

rate at 1980 = P * CPI@2009/CPI@1980