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In October 2017 a pound of apples cost $1.61, while oranges cost $1.25. Two years earlier...

In October 2017 a pound of apples cost $1.61, while oranges cost $1.25. Two years earlier the price of apples was only $1.40 a pound and that of oranges was $1.11 a pound.

Compound annual growth rate of apples

Compound annual growth rate of oranges

Price of apples

Price of oranges

Solutions

Expert Solution

Compound annual growth rate of apples, g = (Price of apples in 2017/Price of apples two years earliler)^(1/2) - 1

g = (1.61/1.40)^(1/2) - 1

g = 0.07238052948

Compound annual growth rate of apples, g = 7.238052948% = 7.24%

Compound annual growth rate of organges, g = (Price of oranges in 2017/Price of oranges two years earliler)^(1/2) - 1

g = (1.25/1.11)^(1/2) - 1

g = 0.06119089995

Compound annual growth rate of oranges, g = 6.119089995% = 6.12%

Number of compounding years until 2030 = 2030 - 2017 = 13

FV = PV * (1 + g)^n

Price of apples in 2030 = 1.61 * (1 + 0.07238052948)^13

Price of apples in 2030 = 3.9935749391 ~ $3.99

Price of oranges in 2030 = 1.25 * (1 + 0.06119089995)^13

Price of oranges in 2030 = 2.7053641798 ~ $2.71

jeff jeffy answered 2 years ago
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