Answer to Question #184594 in Financial Math for Claire

Question

From 1992 to 1995, a certain country experienced a yearly inflation rate of 229%. Determine the price of a $2.22 fast food meal after 8 years at a 229% inflation rate.

Answer 1

Future price of the fast food after inflation in 8 years is same as the purchasing power of the current price amount after inflation for 8 years.

Hence,

Future price = [Current price /(1 + Inflation rate)]^{no of years}

^{= [2.22/(1+2.290]^8}

^{= [ 2.22/3.290]^8}

^{= [0.6687]^8}

^{= 0.039980}

^{= 0.04}