In Questions make the assumption that the change in housing prices exactly matches the change in the CPI. In fact, housing is only part of the CPI, and figures into the CPI through rents rather than sale prices, so this assumption may be far from correct.
-In 1997, Alva had the opportunity to either invest $100,000 for five years in the housing market or in a CD paying 2.2%. If the 1997 CPI is 160.5 and the 2002 CPI is 179.9, which is the better investment?
A) the housing market
B) the CD
C) The options are equivalent.
D) There is not enough information to know.

Question

Quizplus · Accepted Answer

The housing market investment would yield a higher return because the increase in CPI (which we are assuming correlates directly with housing prices) from 160.5 to 179.9 represents a percentage increase greater than the 2.2% annual return from the CD. The CPI increase is approximately 12.1% over five years, which exceeds the total return from the CD of approximately 11.5% (2.2% per year compounded annually for five years).

In Questions Make the Assumption That the Change in Housing