1 ) Ten years ago a machine cost $800,000. Now, the same machine costs $1,200,00

Question

1 ) Ten years ago a machine cost $800,000. Now, the same machine costs $1,200,000. Calculate the average rate of inflation per year.

3.7%,   5.0%,   4.1% , 4.6%

2) An investor bought a tax-free provincial bond, at a cost of $1000 which will pay $50 interest each year for 20 years. The bond will mature in 20 years and return the original $1000. If there is a 2% annual inflation during this period, what real rate of return will the investor receive?

2.9% , 2.5%  , 3.2%,   4.0%

3) A composite price index for the cost of vegetarian foods called eggs, artichokes, and tofu (EAT) was 330 ten years ago and has averaged an annual increase of 12% since. Calculate the current value of the index.

480 618 877 1025

Explanation / Answer

1)S=C(1+r)^t => 1200000=800000(1+r)^10

=>3/2 =(1+R)^10 =>0.04137 => average rate of inflation per year(percent)=4.137%

3) S=C(1+r)^t=330(1+0.12)^10=1025

2)2.9%

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