Exponential & Log Applications - Exercise 2 - Inflation
An 80 year old home is selling for $85,000 in the year 2006 and
features the same type of siding, roof, kitchen, and bathroom that it
had when it sold for $65,000 in the year 2000. The
inflation rate over this period averages 2.8% and one can assume this
rate compounds continuously.
Is the $85,000 price reasonable? In other words, is the 2006
price of this house higher than can be explained by inflation? Use the
continuous compounding formula A = Pert where A is the
price after inflation, P is the original price, r is the inflation
rate, and t is the number of years after the year 2000. Just
plug into the formula and be able to explain your answer. No
Further Justification is Needed.
|A = Pert, r=0.028, t=6
= Yr-2006 Price Adjusted For Inflation
P = Yr=2000 Price = $65000