Question

You have​ $675 today which is enough to buy 375 bottles of Diet Pepsi. If the price of Diet Pepsi is expected to increase by​ 4% over the next​ year, what approximate nominal rate would you have to earn to be able to buy 400 bottles of Diet Pepsi next​ Year?

Answer 1

Answer:

Nominal growth= 10.93%

Explanation:

Giving the following information:

You have​ $675 today which is enough to buy 375 bottles of Diet Pepsi. The price of Diet Pepsi is expected to increase by​ 4% over the next​ year.

First, we need to find the dollar amount necessary to buy 400 bottles:

Unitary cost= 675/375= $1.8

New unitary cost= 1.8*1.04= $1.872

Total cost= 400bottles*1.872= $748.8

Now we can calculate the nominal rate of growth:

r= [(748.8 - 675)/675]*100= 10.93%