Question

If land values stay constant (i.e. i is zero) for the next 1.4 years and the...

If land values stay constant (i.e. i is zero) for the next 1.4 years and the general inflation rate is 2%, by what percentage has the real value of land changed during this time period? Hint: Use the formula from the last question but raise the quotient of the division problem to the appropriate number of years. Make sure to express your final answer as a percentage

t i*t = [{(1 + it) / (1 + It)} - 1] x 100

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Answer #1

Let the Value of the Land Today = L. Value of the land after 1.4 years = L (Land Price Inflation is 0). General Inflation = 2%. Present value of Land after 1.4 years = L/(1+2%)^(1.4) (Assuming yearly compounding) = 97.27%L. Hence, Real value of Land after 1.4 years = 97.27%*L. Therefore, percentage change of real value of land has changed is 97.27%-1 i.e. -2.73%.

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