Question

Four years ago, a popular sandwich company used to sell 12-inch roast beef subs for only $5.49, but the same product now sells at $6.99. Assuming inflation has been constant those four years, and that the entire cost increase is attributed to inflation, what was the inflation rate

Answer 1

Answer:

6.22%

Explanation:

Price of sandwich four years ago, Present value = $5.49

Price of sandwich, Future value = $6.99

It is given that the inflation has been assumed to be constant over these four years.

Inflation rate refers to the rate at which prices of the good increases from the previous level. In a simple language, if there is a rise in the price of the goods then this economy is experiencing a inflation.

Inflation rate:

$=(\frac{Future\ value}{Present\ value}) ^{\frac{1}{n} } -1$

$=(\frac{6.99}{5.49}) ^{\frac{1}{4} } -1$

= 1.0622487 - 1

= 0.0622487 or 6.22%

Therefore, the inflation rate is 6.22%