The cost of first-class postage has risen by about 6% per year over the past 30

Question

The cost of first-class postage has risen by about 6% per year over the past 30 years. The U.S. Postal Service introduced a one-time forever stamp in 2008 that cost 41 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 6% inflation per year over the next 30 years and your personal MARR is 10% per year (1m). Click the icon to view the interest and annuity table for discrete compounding when i = 10% per year. Click the icon to view the interest and annuity table for discrete compounding when i= 6% per year. The FW of 1,000 post stamps 30 years from now is . (Round to the nearest dollar.) The FW of the cost of 1,000 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

cost of 1000 stamps = 1000 x .41 cents = $410

a.

FW of the $410 were to inflate at 6% per year is $410(1.06)^30 = $2354.831

b.

So we can equate these two amounts as follows: P(1.10)^30 = $400,000(1.06)^30 or P = $400,000(1.06 / 1.10)^30 . This equals $410x 0.329151 = $134.952

c. no

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