SOLUTION: The Consumer Price Index is increasing at a rate of 5% per year. By what factor will prices increase in 2 years. Use the approximate doubling time formula (rule of 70).

Algebra ->  Finance -> SOLUTION: The Consumer Price Index is increasing at a rate of 5% per year. By what factor will prices increase in 2 years. Use the approximate doubling time formula (rule of 70).      Log On


   

Question 1194036: The Consumer Price Index is increasing at a rate of 5% per year. By what factor will prices increase in 2 years. Use the approximate doubling time formula (rule of 70).
Found 2 solutions by Theo, ikleyn:
Answer by Theo(13342) About Me  (Show Source):
You can put this solution on YOUR website!
the consumer price index is increasing at a rate of 5% per year.
in 2 years, the average consumer price will be 1.05 ^ 2 = a factor of 1.1025 which is 10.25% higher than it is today.
i don't believe the rule of 70 applies here.
the rule of 70 says that the consumer price should double in 70/5 = 14 years.
1.05 ^ 14 = 1.979931599 which is approximately double the price it is today.
the rule of 70 appears to be a good approximation of when the consumer price index will be double what it is today, but that doesn't help in determining what the consumer price index will be 2 years from now, as far as i know.
let me know if you have any questions.
theo



Answer by ikleyn(52803) About Me  (Show Source):
You can put this solution on YOUR website!
.

The instruction at the end of the post is  highlight%28highlight%28highlight%28IRRELEVANT%29%29%29  to the problem.


The factor the problem asks for is


    1.05%5E2 = 1.1025.    ANSWER