Question

Average Oil Prices
Year	Price per Barrel
1949	$2.54
1950	$2.51
1951	$2.53
1952	$2.53
1953	$2.68
1954	$2.78
1955	$2.77
1956	$2.79
1957	$3.09
1958	$3.01
1959	$2.90
1960	$2.88
1961	$2.89
1962	$2.90
1963	$2.89
1964	$2.88
1965	$2.86
1966	$2.88
1967	$2.92
1968	$2.94
1969	$3.09
1970	$3.18
1971	$3.39
1972	$3.39
1973	$3.89
1974	$6.87
1975	$7.67
1976	$8.19
1977	$8.57
1978	$9.00
1979	$12.64
1980	$21.59
1981	$31.77
1982	$28.52
1983	$26.19
1984	$25.88
1985	$24.09
1986	$12.51
1987	$15.40
1988	$12.58
1989	$15.86
1990	$20.03
1991	$16.54
1992	$15.99
1993	$14.25
1994	$13.19
1995	$14.62
1996	$18.46
1997	$17.23
1998	$10.87
1999	$15.56
2000	$26.72
2001	$21.84
2002	$22.51
2003	$27.54
2004	$38.93
2005	$46.47
2006	$58.30
2007	$64.67
2008	$91.48
2009	$53.48
2010	$71.21
2011	$87.04
2012	$93.02
2013	$97.91
2014	$93.26
2015	$48.69
2016	$43.14
2017	$50.88

a) Using the 1949 oil price and the 1969 oil price, compute the annual growth rate in oil prices during the 20 yr period. b) Compute the growth rate between 1969 & 1989 and between 1989 & 2017. c) given the price in 2017 and your growth rate between 1989 and 2017 compute the future price of oil in 2020 & 2025.

Answer 1

a). Price of oil in year 1949 = $2.54

Price of oil in year 1969 = $3.09

annual growth rate between 1949 and 1969 = (P1969/P1949)^(1/20) - 1 = (3.09/2.54)^(1/20) - 1 = 0.98%

b).

Price of oil in year 1969 = $3.09

Price of oil in year 1989 = $15.86

annual growth rate between 1969 and 1989 = (P1989/P1969)^(1/20) - 1 = (15.86/3.09)^(1/20) - 1 = 8.52%

Price of oil in year 1989 = $15.86

Price of oil in year 2017 = $50.88

annual growth rate between 1989 and 2017 = (P1989/P2017)^(1/18) - 1 = (50.88/15.86)^(1/18) - 1 = 6.69%

c). Using growth rate of 6.69% to compute future prices,

So price in 2020 = P2017*(1.0669^3) = 50.88*1.0669^3 = $61.79

Price in 2021 = P2020*1.0669 = 61.79*1.0669 = $65.92

Price in 2022 = P2021*1.0669 = 65.92*1.0669 = $70.33

Price in 2023 = P2022*1.0669 = 70.33*1.0669 = $75.04

Price in 2024 = P2023*1.0669 = 75.04*1.0669 = $80.06

Price in 2025 = P2024*1.0669 = 80.06*1.0669 = $85.42