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:

Long-term Debt

Loans or financial obligations that are due for repayment beyond the next 12 months or the current business cycle.

Finance Assets

Financial assets specifically purchased, created, or held for the purpose of generating income through investment or lending activities.

Financial Leverage

The use of borrowed funds with a fixed cost in order to increase the potential return to shareholders.

Incremental

Relating to or denoting an increase or addition, especially one of a series on a fixed scale.