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    Inflation Problems

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    Please help answering the following problems.

    1) An economist has predicted that for the next five years, USA will have an 8% annual inflation rate, followed by five years at 6% inflation rate.This is equivalent to what average price. This is equivalent to what average price change per year for the entire ten year period?

    2) One economist has predicted that during the next six years prices in the USA will increase 55%. After that, he expects a further increase of 25% in the subsequent 4 years, so that prices at the end of ten years will have increased to 180% of the present level.Compute the inflation rate F, for the entire ten-year period.

    3) An investor wants a real rate of return i (rate of return without inflation)of 10% per year on any projects in which he invests.If the expected annual inflation rate for the next several years is 6%, what interest i should be used in project analysis calculations?

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    Solution Preview

    1) An economist has predicted that for the next five years, USA will have an 8% annual inflation rate, followed by five years at 6% inflation rate.This is equivalent to what average price. This is equivalent to what average price change per year for the entire ten year period?
    Year Average Price
    0 100.00 Base price ...

    Solution Summary

    Inflation problems are examined thoroughly in this posting.

    $2.49

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