Question

On August 1, 1958, first-class postage for a 1-ounce envelope was 4 cents. On August 1, 2007, a first-class stamp for the same envelope cost 41 cents. What was the annual compound increase in the cost of first-class postage during the 49-year period?

Answer 1

Answer:

4.86%

Explanation:

Given that,

First-class postage for a 1-ounce envelope = 4 cents

On August 1, 2007

A first-class stamp for the same envelope cost = 41 cents

Period, n = 49 years

$F=P(1+i)^{n}$

$41=P(1+i)^{49}$

$\frac{41}{4}=(1+i)^{49}$

$10.25\ cents=(1+i)^{49}$

$1.0486=(1+i)$

i = 1.0486 - 1

 = 0.0486 or 4.86%

Therefore, the interest rate is 4.86%.