Betty bought a house in 1987 for $99,000 and sold it in 2001. If the 1987 CPI is
ID: 2778366 • Letter: B
Question
Betty bought a house in 1987 for $99,000 and sold it in 2001. If the 1987 CPI is 113.6 and the 2001 CPI is 177.1, how much would the house be worth in 2001 dollars? In late 2001 the inflation rate was about 2.9%. If you invested in a savings account with an annual interest rate of 9.2%, what was the real growth rate of this investment? Ray wants to make an investment that will have a real growth rate of 5%. If the current inflation rate is 2.5%, what annual interest rate will he need to get on his investment to accomplish his goal? Javier bought a house in 1974 for $49,000 and sold it in 1997. If the 1974 CPI is 49.3 and the 1997 CPI is 160.5, how much would the house be worth in 1997 dollars? What is the APY for 5.3% compounded quarterly?Explanation / Answer
Answer
5.
CPI IN 2001-B
House worth in 2001
6. Real growth rate = r-a/(1+a)
where r = interest rate
a = inflation rate
Annual interest rate = 9.2%
Inflation rate = 2.9%
Real growth rate of this investment = (9.2%-2.9%)/(1+2.9%) = 6.12%
7.
Real growth rate = r-a/(1+a)
where r = interest rate
a = inflation rate
Annual interest rate = ?
Inflation rate = 2.5%
5%= (r%-2.5%)/(1+2.5%) = 5*1.025 = r%-2.5%
5.13%+2.5% = r
Annual interest rate = 7.63%
8.
CPI IN 1974 = 49.3
CPI IN 1997 = 160.5
COST in 1974 = $49,000
COST IN 1997 = $49,000*160/49.3 = $159,523.33
9.
APY = (1+r/n)n - 1
APY = (1+.053/4)^4-1 = 5.4%
CPI IN 1987-A 113.6CPI IN 2001-B
177.1 CPI CHANGE(A/B) 1.558978873 House worth in 1987 $99,000House worth in 2001
$154,338.91Related Questions
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