Final answer:
Using the Rule of 72, it will take slightly less than 3 years for prices to double at a 25% annual inflation rate. The closest answer is (c) 3 years. The correct option is b. 2 years.
Step-by-step explanation:
To determine how long it will take for prices to double with an inflation rate of 25% per year, we can use the Rule of 72. This rule is a simple way to estimate the number of years required to double the invested money at a given annual fixed interest rate or to double the price due to inflation. By dividing 72 by the annual rate of inflation or interest rate, you get the approximate number of years it will take for the initial amount to double.
The formula is:
Years to double = 72 / Annual Inflation Rate
So, applying the Rule of 72:
Years to double = 72 / 25
Years to double = 2.88 years
Therefore, it will take slightly less than 3 years for the prices to double at a 25% annual inflation rate. The closest answer from the given options would be (c) 3 years.