Chapter 16, Problem CS

To determine

To find: The player with the largest salary in terms of 2005 dollars by converting Babe Ruth’s 1931 and Hank Aaron’s 1976 salary into 2005 dollars.

Answer to Problem CS

Solution: The Babe Ruth’s 1931 salary and Hank Aaron’s 1976 salary in terms of 2005 dollars is $1,027,895 and $858,084, respectively. The player Barry Bond’s has the largest salary than the Babe Ruth’s and Hank Aaron’s in terms of 2005 dollars.

Explanation of Solution

Calculation: The formula to convert the amount from one period to another period is shown below:

$\text{Dollars at time B}=\text{Dollars at time A}\times \frac{\text{CPI at time B}}{\text{CPI at time A}}$

So, the Babe Ruth’s 1931 salary in terms of 2005 dollars is calculated as

$\begin{array}{c}2005\text{ dollars}=1931\text{ dollars}\times \frac{\text{CPI of the year 2005}}{\text{CPIof the year 1931}}\\ =\$80,000\times \frac{195.3}{15.2}\\ =\$1,027,894.7\\ \approx \$1,027,895\end{array}$

Again, the Hank Aaron’s 1976 salary in terms of 2005 dollars is calculated as

$\begin{array}{c}2005\text{ dollars}=1976\text{ dollars}\times \frac{\text{CPI of the year 2005}}{\text{CPIof the year 1976}}\\ =\$250,000\times \frac{195.3}{56.9}\\ =\$858,084.3\\ \approx \$858,084\end{array}$