Question

Using the table below, find the real value of a $2,200 payment to be received each year given the following CPI values. Next find the amount that this $2,200 should be adjusted to, in order to keep its real value at $2,200. Instructions: Round your answers to two decimal places. Year CPI Real value of $2200 Cost of living adjusted payment 2013 100 $2,200 $2,200 2014 103 2015 105 2016 110

Answer 1

Hi,

Hope you are doing well!

Question:

Answer:

Real value of a $2,200 payment to be received each year given the following CPI values:

CPI for :

Year-CPI

2013- 100

2014 -103

2015- 105

2016 -110

Here i will calculate the inflation rate. Inflation is a general increase in prices and fall in the purchasing value of money.

Inflation Rate = [(CPI of current period - CPI of previous period)/CPI of previous period] * 100

CPI for 2014 = [(103 -100)/100] *100 = (3/100) *100 = 0.03 *100 = 3.00%

CPI for 2015 = [(105 -103)/103] *100 = (2/103) *100 = 0.0194 *100 = 1.94%

CPI for 2016= [(110 -105)/105] *100 = (5/105) *100 = 0.0476 *100 = 4.76%

In 2013 the value of $2200 will be $2000

In 2014 the value of $2200 will be -

$2200 - $2200 *3% = $2200 - 66= $2134

Amount that should be adjusted to keep its real value at $2,200 = $66.00

In 2015 the value of $2200 will be -

$2200 - $2200 *1.94% = $2200 - 42.68= $2157.32

Amount that should be adjusted to keep its real value at $2,200 = $42.68

In 2016 the value of $2200 will be -

$2200 - $2200 *4.76% = $2200 - 104.72 = $2095.28

Amount that should be adjusted to keep its real value at $2,200 =$104.00

Thank You