# [SOLVED] How to Figure the compounding Inflation rate over time?

• Feb 10th 2008, 10:10 PM
maharas
[SOLVED] How to Figure the compounding Inflation rate over time?
I'm trying to figure out how to setup an equation for figuring out what the future value of a utility's usage rate will be over time. For example I want to know how much electricity in dollars a light bulb will consume over its life time taking into account real inflation costs on an electrical rate. Given that Inflation = 4%, Time=10 years, Electrical rate = .11/kilowatt hr, Lamp hrs=10,000, Lamp power usage/hr = 23w

(10,000 hours x \$0.11 per Kwh x 23W)/1000= \$25.30 worth of consumed electricity over its life time, but I can figure out how to apply the rising cost of the electrical rate due to inflation over the bulb's 10 year life.

I have tried using the formula I=PeRT as well as I=PRT and can't seem to find a solution. Can anyone shed some light on this problem?
Thanks
• Feb 10th 2008, 10:59 PM
topher0805
Well, you have a good starting point. You have already figured out that \$23.50 is the amount of money that it will cost to use a light bulb for 10 years, assuming there is no inflation.

So, divide that number by 10 to get the amount of money it will cost for 1 year of use.

Now that you have the amount in one year, \$2.35, you can use the compound interest formula to find the amount of money used during the other years and simply add them together.

Total Cost $= 2.35 + 2.35(1.04) + 2.35(1.04)^2 + 2.35(1.04)^3 + 2.35(1.04)^4$.....

There is a way to represent this using this http://upload.wikimedia.org/math/b/e...7cb04d4b6e.png, but I am not sure how to use LaTex to do that, so I will let you find this yourself.