If the economy is experiencing 50 percent inflation per month, then a donut that costs $1.50 today will cost about _______ next year.

Question

Quizplus · Accepted Answer

If there is 50% inflation per month, then in a year (12 months), the inflation rate would be: 
(1 + 0.5)^12 - 1 = 3168.8%
This means the price of the $1.50 donut would increase by 3168.8% after a year. 
So, the new price would be: 
1.5 + (3168.8/100) * 1.5 = $49.03 
Rounding it to the nearest dollar gives $49, and so the closest answer choice is D) $195.

If the Economy Is Experiencing 50 Percent Inflation Per Month