Assume that inflation will increase the prices of everything at a rate of 5 percent a year over the next 10 years. In 3 years, what will be the price of a stereo that now costs $100? Round ur answer to the nearest hundreth.

Question

ybarrap · Answer

Let P be the price at the end of the period of inflation. We assume that each year, inflation will increase by a factor of 5% / 10 years or .05/10:
$$
P=P_0(1+.05/10)^n
$$
Where $P_0=$100$, is the price at the beginning (i.e $n=0$) and $n$ is the number of years that have elapsed, 0,1,2,...

What you want is P, the price at n=3, when the 3rd year hits.

That's it!

lilsis76 · Answer

what?! HAHA okay hold on @ybarrap   haha I forgot to put multiple choice answers haha sorry these are my choices

lilsis76 · Answer

a) $105 b) 115   c)115.52   d)115.76   e)150.

lilsis76 · Answer

@ybarrap

anonymous · Answer

A = P (1+r)^3  but r = 0.05 not 0.05/10

A = 115.76

ybarrap · Answer

@douglaswinslowcooper is correct, I read as 5% over 10 years.

lilsis76 · Answer

YAY!!! thank you lol

anonymous · Answer

Thank you both.

ybarrap · Answer

yw