please do it all or leave it Question 1 (1 point) An automobile that cost $19,50

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please do it all or leave it

Question 1 (1 point) An automobile that cost $19,500 in 2004 had an equivalent model 4 years later that cost $22,250. If the increase is attributed to inflation, what was the average annual rate of inflation? O 5.35% 2.35% 4.35% 3.3596 Save Question 2 (1 point) An economy is experiencing inflation at an annual rate of 6%. If this continues, what will $100 be worth 5 years from now in today's dollars? O $84.73 O$64.73 o $74.73 O $94.73 Save Question 3 (1 point) How much life insurance should a person buy if he wants to leave enough money to ensure that his family will receive $25,000 per year in interest in current year dollars. The interest rate expected from the bank is 11%, while the inflation rate is expected to be 4% per year. (round up to nearest thousand). Assume n is infinite, you don't know when you will die and how long your family will live and need the money o $342,000 o $372,000 $320,000 o $362,000 Save

Explanation / Answer

1. Answe is 3.35%

22,250= 19,500 (1+f)^4 (1+f)^4=1.141 f= .0335 or 3.35%

2. Answer $74.73

Thus $100 in five years will be worth only $74.73 in terms of today's dollars. Stated differently, in five years $100 will be required to purchase the same commodity that can now be purchased for $74.73.

3. Answer Is $372000

Actual (Effective) interest rate that the family will be getting is
i=i-f/i+f(Where)
i =11%(interest rate expected from bank)
i.e. 0.11
f (expected inflation rate)=4%, i.e. 0.04
i = i-f/i+f 0.11-0.04/1.04=0.07/1.04=6.73(0.0673*100)
To calculate principle amount (P) where n=infinite
P=a/i , (a=$25000) and (i =0.0673)
$25000/0.0673=$371471(Round up to nearest thousand is $372000)
Therefore he need to buy about $372000 of life insurance

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