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Math Help - Calculating Inflation rates

  1. #1
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    Exclamation Calculating Inflation rates

    In a country where inflation is a concern, prices have risen by 40% over a 5-year period.

    a) By what percent do the prices rise each year?
    b) How long does it take for prices to rise by 5%?

    So how would I start out this problem? When it says inflation that means the prices are going up.

    Should I use this formula:
    P0e^k*t = P0
    e^k*5 = 1.4 to solve and find the answer to a?

    If so then should the answer to a) be 0.067294447 or 6.7294447%?

    Also for b) should the set up be like this?
    1(1.067294447)^t = 1.05? Solve for t
    If so should the answer to b) be 0.749155419?

    Please help me with theses problems. Thank you.
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  2. #2
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    Quote Originally Posted by krzyrice View Post
    In a country where inflation is a concern, prices have risen by 40% over a 5-year period.

    a) By what percent do the prices rise each year?
    b) How long does it take for prices to rise by 5%?

    So how would I start out this problem? When it says inflation that means the prices are going up.

    Should I use this formula:
    P0e^k*t = P0
    e^k*5 = 1.4 to solve and find the answer to a?
    Inflation acts like "compounding continuously" so that would be correct.

    If so then should the answer to a) be 0.067294447 or 6.7294447%?
    If you are asking "which", the problem say "By what percent" so the second is correct.

    Also for b) should the set up be like this?
    1(1.067294447)^t = 1.05? Solve for t
    If so should the answer to b) be 0.749155419?
    No, you should use the formula you used to get .06729447:
    [tex]e^{.06729447 t}= 1.05.

    Please help me with theses problems. Thank you.
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