A Labor Contract Provides for a First-Year Wage of $15

question 5

Multiple Choice

A labor contract provides for a first-year wage of $15 per hour, and specifies that the real wage will rise by 2 percent in the second year of the contract. The CPI is 1.00 in the first year and 1.09 in the second year. What dollar wage must be paid in the second year?

• A) $15.30
• B) $16.09
• C) $16.65
• D) $16.68

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Definitions:

Compound Interest

Interest computed by performing the simple interest formula periodically during the term of the investment.

Future Value

The worth of a current asset on a future date, calculated by estimating its growth rate over a specific period.

Compound Interest

Interest on both the initial principal and the accumulated interest from previous periods on a deposit or loan.

Future Value

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