Question

A price of a gallon of milk is increasing at a rate of 2% each year. If a gallon of milk cost $3.75 in 2017, how much will a gallon of milk cost in 2020?

A. $4.09
B. $4.23
C. $4.49
D. $4.61

Answer 1

A gallon of milk will cost approximately $4.09 in 2020.

Step-by-step explanation:

To calculate the cost of a gallon of milk in 2020, we need to calculate the compounded annual growth rate (CAGR) and apply it to the initial price. The formula for CAGR is:

CAGR = ((Final Value / Initial Value) ^ (1 / Number of Years)) - 1

Using the given information, the initial value is $3.75 and the number of years is 3. Plugging in these values, we get:

CAGR = ((Final Value / $3.75) ^ (1 / 3)) - 1

To find the final value, we rearrange the formula as:

Final Value = Initial Value * ((1 + CAGR) ^ Number of Years)

Substituting the values, we get:

Final Value = $3.75 * ((1 + 0.02) ^ 3)

Calculating this, we find that a gallon of milk will cost approximately $4.09 in 2020.