QUESTION 21 Although inflation has been steady at a 2.5% average rate, economist

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QUESTION 21 Although inflation has been steady at a 2.5% average rate, economists now see trouble on the horizon due to the increases in crude oil prices over the next five years. The leading economists in the oil industry expect oil prices to inflate at 2.8%, 3.2%, 5.4%, 8.8%, and 1 1.7% over the next five years. You own a fuel oil company, and you need to revise your five-year budget to include these expected increases in oil prices. Compute the mean percentage inflation rate f for the five-year period to two decimal places accuracy T T T Arial Words:0h Path: p

Explanation / Answer

Question 21

Expected inflation rate in Year 1 = 2.8%

Expected inflation rate in Year 2 = 3.2%

Expected inflation rate in Year 3 = 5.4%

Expected inflation rate in Year 4 = 8.8%

Expected inflation rate in Year 5 = 11.7%

Calculate the mean percentage inflation rate -

Mean percentage inflation rate = (2.8% + 3.2% + 5.4% + 8.8% + 11.7%)/5

Mean percentage inflation rate = 31.9%/5 = 6.38%

The mean percentage inflation rate for the five year period is 6.38%.

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