Dave bought a new car 8 years ago for $8400. To buy a new car comparably equipped now would cost $12,500. Assuming a steady rate of increase, what was the yearly rate of inflation in car prices over the 8 year period?

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diegoguzman9341 diegoguzman9341

14-04-2022
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Dave bought a new car 8 years ago for $8400. To buy a new car comparably equipped now would cost $12,500. Assuming a steady rate of increase, what was the yearly rate of inflation in car prices over the 8 year period?

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anthougo anthougo · Answer 1 · 2022-04-22T12:07:33+02:00

The yearly rate of inflation in car prices over the 8 years that Dave bought his new car for $8,400 is 5.1%.

What is inflation?

Inflation is the general increase in prices of goods and services in an economy which reduces the purchasing power of the consumers.

Based on the given information, the yearly increase in the inflation rate can be computed using the present value formula from an online finance calculator as below.

Data and Calculations:

N (# of periods) = 8 years

I/Y (Interest per year) = 5.1%

PMT (Periodic Payment) = $0

FV (Future Value) = $12,500

Results:

PV = 8,396.31 or $8,400

Total Interest $4,477.49

Thus, the yearly rate of inflation in car prices over the 8 years that Dave bought his new car for $8,400 is 5.1%.

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