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

question 216

Multiple Choice

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

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

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Definitions:

Coupon Rates

The annual interest rate paid on a bond, expressed as a percentage of the face value.

Interest Rates

The charge, as a percentage of the principal sum, levied by a lender on a borrower for asset usage.

Callable Bond

A type of bond that gives the issuer the right to repay the bond before its maturity date, often at a predetermined price.

Retirement

The period in an individual's life after they have ceased working, typically upon reaching a certain age.