Contemporary Engineering Economics (6th Edition)
Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Chapter 11, Problem 1P
To determine

Calculate the inflation rate.

Expert Solution & Answer
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Explanation of Solution

Time period is denoted by n, interest rate is denoted by i, and inflation rate is denoted by f.

Inflation rate can be calculated as follows.

PricePresent(1+f)n=PricePresent(1+PriceIncreasing rate 1)(1+PriceIncreasing rate 2)(1+PriceIncreasing rate 3)3.5(1+f)3=3.5(1+0.04)(1+0.06)(1+0.08)f=0.059874

Inflation rate is 5.9874%.

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