Suppose You Know the Value of the Consumer Price Index $$\text { CPI in year } 2 = \frac { 100 \times \text { CPI in year } 1 } { \text { Inflation rate in year } 1 \times 100 }$$

question 265

Multiple Choice

Suppose you know the value of the consumer price index (CPI) in year 1 as well as the inflation rate in year 2. Which of the following equations is valid for the CPI in year 2?

• A)
• \[\text { CPI in year } 2 = \frac { 100 \times \text { CPI in year } 1 } { \text { Inflation rate in year } 1 \times 100 }\]
• B)
• \[\text { CPI in year } 2 = \frac { \text { CPI in year } 2 \div 100 } { \text { Inflation rate in year } 2 + 100 }\]
• C)
• \[\text { CPI in year } 2 = \frac { ( \text { Inflation rate in year } 2 \div \text { CPI in year } 1 ) + \text { CPI in year } 1 } { 100 }\]
• D)
• \[\text { CPI in year } 2 = \frac { ( \text { CPI in year } 1 \times \text { Inflation rate in year } 2 ) + ( 100 \times \text { CPI in year } 1 ) } { 100 }\]

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Definitions:

Future Value

The value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.

Interest

The cost of borrowing money, often expressed as a percentage of the amount borrowed, paid to the lender over a specified period.

Time-Value

The concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.

Money

Any item that is generally acceptable to sellers in exchange for goods and services.