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You are here: Experts > Science > Math for Kids > Word Problems > Question about figuring inflation
Word Problems - Question about figuring inflation
Expert: Scott A Wilson - 10/26/2009
Question
The equation S=C(1+r/100)^5 is to find the inflated cost S, in five years of an item, where C is the current price of that item in that countries currency and where the inflation rate is r%.
Country - Germany/Product A beer priced at 2.6 EUR and the current inflation rate is -0.3%.
Find the approximated inflated rate of C after 5 years. Please include calculations as needed.
I have absolutely no clue how to even start. Thank you so much in advance for your help.
Answer
If the inflation rate is -0.3%, that means that next year the product will only be worth 99.7% of what it was worth this hear.
Using the formula, S = C(1 - 0.3/100)^5 = C(0.997)^5. The five is in the exponet for 5 years.
A good way to approximate it, since 0.997 is close to 1, is take -0.003*5 and get -0.015,
so the equation will be S = C(0.985). If .997^5 is looked at, it comes out to be 0.98508973.
Now since C is 2.6 EUR, the value in 5 years will be 2.561 EUR.
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