Question

Find the cost of each item in 6 years, assuming an inflation rate of 9% (compounded continuously). (Round your answers to the nearest cent.)

(f) small car, $16,000

(g) car, $27,000

(h) tuition, $26,000

Answer 1

EAR =[ e^(Annual percentage rate) -1]*100

Effective Annual Rate=(e^(9/100)-1)*100

Effective Annual Rate% = 9.42

f

Future value = present value*(1+ rate)^time

Future value = 16000*(1+0.0941742837052104)^6

Future value = 27456.11

g

Future value = present value*(1+ rate)^time

Future value = 27000*(1+0.0941742837052104)^6

Future value = 46332.19

h

Future value = present value*(1+ rate)^time

Future value = 26000*(1+0.0941742837052104)^6

Future value = 44616.18