USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information
Nominal annual return on U.S. government T-bills for year 2018 = 3.5%
Nominal annual return on U.S. government long-term bonds for year 2018 = 4.75%
Nominal annual return on U.S. large-cap stocks for year 2018= 8.75%
Consumer price index January 1, 2018 = 165
Consumer price index December 31, 2018 = 169
-Refer to Exhibit 1.10. Compute the rate of inflation for the year 2018.
A) 2.42%
B) 4.0%
C) 1.69%
D) 1.24%
E) 0%

Question

Quizplus · Accepted Answer

The rate of inflation can be calculated using the formula for inflation rate = [(CPI at the end of the year - CPI at the beginning of the year) / CPI at the beginning of the year] * 100. Substituting the given values, [(169 - 165) / 165] * 100 = 2.42%.