Question

Inflation is causing a rise of approximately 2% per year in the cost of living. A bag of milk costs $3.95 now. Estimate the cost five years from now.

Answer 1

1 year .02(3.95)+3.95 = 4.029
2 years .02(4.029)+4.029=4.10958
3 years .02(4.10958)+4.10958=4.1917716
4 years .02(4.1917716)+4.1917716=4.275607032
5 years .02(4.275607032)+4.275607032=4.36111917264
After 5 years it would become $4.36

Answer 2

Now: $3.95 = $3.95
In 1 year: $3.95 * 1.02 = $3.95 * 1.02^1
In 2 years: ($3.95 * 1.02) * 1.02 = $3.95 * 1.02^2
In 3 years: (3.95 * 1.02 * 1.02) * 1.02 = $3.95 * 1.02^3
In 4 years: ($3.95 * 1.02 * 1.02 * 1.02) * 1.02 = $3.95 * 1.02^4
In n years: = $3.95 * 1.02^n

Answer 3

In your case, for 5 years,
$3.95 * 1.02^5 = $4.36