Megans salary for three consecutive years along with other v

Megan\'s salary for three consecutive years, along with other values, are presented in the table below. Year 2008 2009 2010 Salary $60,000 $65,000 $72,000 CPI 200.0 212.0 233.2 Real Interest Rate 3.0% 3.6% 3.3% Assume the consumer price index for 2010 is unknown. If the nominal interest rate for 2010 is 7.3 percent , then the consumer price index for 2010 is, in fact,

Solution

Salaries for the years 2008, 2009, 2010: 60,000, 65,000, 72,000,

CPI: 200.0, 212.0, 233.2

Real interest rate: 3.0, 3.6, 3.3%.

Nominal interest rate for 2010 = 7.3%; Real interest rate given = 3.3%.

Inflation for the year 2010 = 4%

CPI for the year 2009 given = 212.0

CPI for the year 2010 will be: 212 x 104 / 100 = 220.48.

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