Question

To calculate the fully indexed rate for the end of the second year, you add the margin to the index value. In this case, with a 3% margin and a 4.50% index rate:

Fully Indexed Rate = Margin + Index Rate
Fully Indexed Rate = 3% + 4.50%
Fully Indexed Rate = 7.50%

So, the fully indexed rate at the end of the second year is 7.50%.

Answer 1

The fully indexed rate at the end of the second year is 7.50%, calculated by adding a 3% margin to a 4.50% index rate. The inflation rate is calculated using the percentage change formula, which in a given example results in a 6.5% inflation rate when the index number increases from 93.4 to 99.5.

Step-by-step explanation:

To calculate the fully indexed rate for the end of the second year, one needs to add the margin to the index rate. In the given example, with a 3% margin and a 4.50% index rate, the calculation would be as follows: Fully Indexed Rate = Margin + Index Rate

Fully Indexed Rate = 3% + 4.50%
Fully Indexed Rate = 7.50%
Therefore, the fully indexed rate at the end of the second year is 7.50%.

When it comes to calculating the inflation rate using index numbers, we use the percentage change formula. For instance, if the index number increases from 93.4 to 99.5 from period 1 to period 2, the inflation rate is calculated as:
(99.5 - 93.4) / 93.4 = 0.065 = 6.5%

This method of calculating the inflation rate maintains the same proportion as the total dollar cost of purchasing a basket of goods, providing a consistent measure for the change in purchasing power or costs over time.