the price of a dishwasher today is $500 and inflation is 10% per year. therefore, in...

Question

Question

the price of a dishwasher today is $500 and inflation is 10% per year. therefore, in 3 years the price will be $650. true or false

Answer 1

Answer #1

Present value = PV = $500

inflation rate = i = 10% per year

Time period = n = 3 years

Future value can be calculated using the formula:

FV = PV*(1+i)ⁿ

Future value of dishwasher = FV = 500*(1+10%)³ = 500*1.1³ = 500*1.331 = $665.50

Price of the dishwasher in 3 years will be $665.5 and not $650.

Answer -> the price of a dishwasher today is $500 and inflation is 10% per year. therefore, in 3 years the price will be $650 - False

Answer 2

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