The rate of inflation measures the percentage increase in the price of consumer goods. The rate of inflation from the year 2005 to 2007 was 5%. Suppose that this rate persisted through 2015. What would be the cost in 2015 of an item that costs $100 in 2005?
A)$127.63
B)$135.89
C)$149.63
D)$162.89

Question

Quizplus · Accepted Answer

The cost in 2015 of an item that costs $100 in 2005, with a 5% annual inflation rate over 10 years, is calculated using the formula for compound interest: Final Amount = Principal Amount * (1 + rate)^time. Here, it's $100 * (1 + 0.05)^10 = $100 * 1.27628 = $127.63.

The Rate of Inflation Measures the Percentage Increase in the Price