Question

With an annual inflation of 3.5%, prices will double in _____ years, and if inflation increases to 10%, prices will double in _______ year(s). Show your work

a. 20; 7  

b. 17; 20

c. 35; 1

d. 2; 4

Answer 1

Answer

The Correct answer is Option A i-e 20 years and 7 years .

Reasoning --

In such types of questions where we just need to find out the number of years in which the years  required to double the invested money at a particular rate of return or iniflation or interest .WE USE RULE OF 72 . Now what is this rule , this rule is quick formula which is used to estimate the number of years required to double the invested value /amount at particular rate of inflation oor anything .Another interesting thing about Rule of 72 is that it can be applied to investment ,inflation or anythign that grows like GDP or population .

Here the formula is ,.

Years to Double = 72 / Inflation rate (or whatever grows )

so we just have to enter the inflation rate ,

so at inflation =3.5 % we get

Year to double = 72/3.5 = 20 years (Approx)

At inflation =10% we get

Year to double the price = 72/10 = 7.2 =7 years (Approx)

Hence

With an annual inflation of 3.5%, prices will double in __20___ years, and if inflation increases to 10%, prices will double in ___7____ year(s).

Option A is correct .

HAVE A GOOD DAY !