Question

A first class postage stamp now costs $0.46. If we assume an annual rate of inflation of 2.06%, in what year would you expect a stamp to cost $0.60?

Answer 1

In `14` th year the stamp is expected to cost more than `$0.6`.

Explanation:

Here present value, `p= $0.46`. Future value `f=$0.6`. Rate of inflation `r=2.06% = 2.06/100=0.0206`. Time, `t=?`

Formula: `f= p(1+r)^t or (1+r)^t = f/p`Logging both sides we get `t*log(1+r) = (logf-logp) or t=(logf-logp)/log(1+r)=(log 0.6-log0.46)/log(1+0.0206)= (log 0.6-log0.46)/log1.0206=13.03(2dp)`years [Ans]