Question

Inflation Rate Suppose the annual rate of inflation averages 2% over the next 10 years. With this rate of inflation, the approximate cost c of goods or services during any year in the decade will be given by

C(t) = P(1.02)t, 0 ≤ t ≤ 10
where t is time in years and P is the present cost. If the cost of a graphing calculator is presently $80, estimate the cost 10 years from now.

Answer 1

After 10 years the cost will be $ 97.52.

Explanation:

This problem requires us to calculate the cost of graphing after 10 years if inflation rate is two percent. This can easily be calculated by compounding present value of current cost at the rate of 2%. Detail calculation is given below.

FV= 80 (1+2%)^10

FV = $ 97.52