The cost of first-class postage has risen by about 5% per year over the past 30

Question

The cost of first-class postage has risen by about 5% per year over the past 30 years. The U.S. Postal Service introduced a one-tim forever stamp in 2008 that cost 42 cents for first-class postage (one ounce or less) and it will be valid as first-class postage regardless of all future price increases. Let's say you decided to purchase 1,000 of these stamps for this one-time special rate. Assume a 5% inflation per year over the next 30 years and your personal MARR is 10% per year.

a.) The FW of 1,000 post stamps 30 years from now is $___________

b.) The FW of 1,000 stamps, provided you didn't buy them, 30 years from now is $____________

The cost of first-class postage has risen by about 4% per year over the past 30 years. The US. Postal Service introduced a one-time forever stamp in 2008 that cost 40 cents for first-class postage (one ounce or less), and it will be valid as first-class postage regardless of all future price increases. Let's say you decided to purchase 2,000 of these stamps for this one-time special rate. Assume 4% inflation per year over the next 30 years and your personal MARR is 12% per year (i_m). The FW of 2,000 post stamps 30 years from now is $ (Round to the nearest dollar.) The FW of the cost of 2,000 stamps, provided you didn't buy them. 30 years from now is $ (Round to the nearest dollar.) Did you make a sound economical decision? Choose the correct answer below. No Yes

Explanation / Answer

1) Cost of 1000 stamps at the rate 42 cents is 420 $.

Now future worth with inflation of 5% in price will be

420 * ( 1.05 )^30 = 1815.22

Now MARR is given as 10%

So we will have to calculate real interest rate

(1.10 / 1.05) - 1 = 4.76%

To calculate FW

420 * (1.0476)^30 = 1695.70

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