What is Mike's new salary if he earned $40,000 last year, the consumer price index increased from 120 to 125, and his salary is adjusted by the rate of inflation annually?
A) $38,400
B) $40,125
C) $41,667
D) $51,800

Question

Quizplus · Accepted Answer

To calculate Mike's new salary, we need to multiply his old salary by the inflation rate.

We can calculate the inflation rate by taking the difference between the two consumer price index (CPI) numbers and dividing it by the original CPI:

Inflation rate = (new CPI - old CPI) / old CPI 
Inflation rate = (125 - 120) / 120 
Inflation rate = 0.0417 or 4.17%

Now we can apply this rate to Mike's old salary:

New salary = Old salary x (1 + inflation rate) 
New salary = $40,000 x (1 + 0.0417) 
New salary = $41,667

So Mike's new salary is $41,667, which is closest to choice C.

What Is Mike's New Salary If He Earned $40,000 Last