Country USA Period for Inflation 2000-2017 Capital EUR 2500 Time period for calculating purchasing power,years 12...
Country USA
Period for Inflation 2000-2017
Capital EUR 2500
Time period for calculating purchasing power,years 12
Total inflation rate %?
Average geometric annual inflation rate%?
The purchasing power of the capital in the future EUR?
Homework Answers
Since the analysis requires 12 years between 2000 and 2017, we look at the inflation rates between 2005 and 2017 for 12 years
The inflation for the 12 years in % terms is as shown below along with geometric average:
| Year | Inflation |
| 2005 | 3.40% |
| 2006 | 2.50% |
| 2007 | 4.10% |
| 2008 | 0.10% |
| 2009 | 2.70% |
| 2010 | 1.50% |
| 2011 | 3.00% |
| 2012 | 1.70% |
| 2013 | 1.50% |
| 2014 | 0.80% |
| 2015 | 0.70% |
| 2016 | 2.10% |
| 2017 | 2.10% |
| Geometric Average mean | 1.54% |
The purchasing power of 2500 EUR would be : Capital * (1- inflation rate)^ number of years = 2500*(1-0.0154)^12 = 2075 EUR
So, in conclusion, the purchasing power of 2500 EUR has been reduced to 2075 EUR in 12 years due to inflation
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