Homework Answers
There are 9 years between 1990 and 1999. Therefore, (n = 9)
Principal = P = 144.8
Amount = A = 192.9
Inflation rate = r =?
Value of e = 2.71828
By the formula, since continuous compounding:
A = P × e^(nr)
192.9 = 144.8 × 2.71828^(9r)
(192.9/144.8) = 2.71828^(9r)
1.33218 = 2.71828^(9r)
In (1.33218) = In (2.71828^(9r))
In (1.33218) = 9r
r = In (1.33218) / 9
= 0.2868166 / 9
= 0.03187
This is to be multiplied by 100 in order to get it in percentage; (0.03187 × 100 = 3.187%).
Answer: Required rate is 3.187%.
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