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Inflation

The document discusses various calculations related to inflation, including price doubling time, real value of savings, real wage adjustments, future costs of education, and impacts on rent and loan payments. Key calculations show that a product will double in price in 10.24 years at a 7% inflation rate, and an engineer's salary will effectively decrease to ₱39,690 after 3 years of 8% inflation. Additionally, it highlights that the average annual inflation rate for a machine over 5 years was 5.38%.

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chhernandez
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15 views5 pages

Inflation

The document discusses various calculations related to inflation, including price doubling time, real value of savings, real wage adjustments, future costs of education, and impacts on rent and loan payments. Key calculations show that a product will double in price in 10.24 years at a 7% inflation rate, and an engineer's salary will effectively decrease to ₱39,690 after 3 years of 8% inflation. Additionally, it highlights that the average annual inflation rate for a machine over 5 years was 5.38%.

Uploaded by

chhernandez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Price Doubling Time Due to Inflation

If the inflation rate is 7% per year, how long will it take for the price of a product to
double?

Solution:

Using the doubling time formula:

where:

 i=7% = 0.07

It will take 10.24 years for the price to double.

Effect of Inflation on Savings

A person deposits ₱200,000 in a bank with 4% annual interest. If inflation is 5%


per year, what is the real value of the savings after 5 years?

Solution:

Using the real future value formula:

where:

 P=200,000
 i=4%=0.04
 f=5%=0.05
 n=5

The real value of the savings will be ₱154,760.

Real Wage After Inflation

An engineer earns ₱50,000 per month. If the inflation rate is 8% per year, what will
be the real value of their salary in 3 years?

Solution:

Using the real salary formula:

where:

 S0=50,000
 i=8%== 0.08
 n=3

Sr = 50,000 (1.08)^{-3} Sr = 50,000 (0.7938) Sr = ₱39,690

The real salary will be ₱39,690 in 3 years.


Future Cost of Education

A university tuition fee is ₱120,000 today. If tuition increases at 5% per year, how
much will it cost in 8 years?

Solution:

The tuition fee will be ₱177,300 in 8 years.

Inflation Impact on Rent

An apartment rental fee is ₱15,000 per month. If rent increases by 4% per year, how
much will it be in 5 years?

Solution:

F = 15,000(1.04)^5 F=15,000(1.2167) F=₱18,251

The rent will be ₱18,251 in 5 years.

Basic Inflation Calculation

A product costs ₱10,000 today. If the annual inflation rate is 5%, what will be its cost
after 3 years?

Solution:

Using the future price formula:

F = P(1 + i)^n

where:
 P=10,000P = 10,000 (present price)
 i=5%=0.05i = 5% = 0.05 (inflation rate)
 n=3n = 3 (years)

F=10,000(1.05)^3 F = 10,000(1.157625) F=₱11,576.25

After 3 years, the product will cost ₱11,576.25.

Inflation Rate from Past and Present Prices

A machine was bought 5 years ago for ₱500,000. Today, it costs ₱650,000. What
was the average annual inflation rate?

Solution:

Using the inflation rate formula:

where:

 P=500,000P = 500,000 (past price)


 F=650,000F = 650,000 (current price)
 n=5n = 5 (years)

Approximating:

i≈1.0538 - 1 = 0.0538 = 5.38%

The average annual inflation rate was 5.38%.

Salary Adjustment for Inflation

An engineer earns ₱40,000 per month. If inflation is 6% per year, how much should
their salary be in 2 years to maintain the same purchasing power?
Solution:

Using the future salary formula:

S=S0(1+i)nS = S_0 (1 + i)^n

where:

 S0=40,000S_0 = 40,000 (current salary)


 i=6%=0.06i = 6\% = 0.06
 n=2n = 2

S=40,000(1.06)^2 S=40,000(1.1236) S=₱44,944

The salary should be ₱44,944 in 2 years.

Inflation Impact on Loan Payments

A company takes a 5-year loan of ₱1,000,000 with an annual interest of 8%. If


inflation is 3% per year, what is the real interest rate?

Solution:

Using the Fisher equation:

where:

 i=8%= 8\% = 0.08 (nominal interest rate)


 f=3%= 3\% = 0.03 (inflation rate)

The real interest rate is 4.85%.

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