calculate the CPI for this year and for 5 years from now. Project the price 5 years from now of an item that you commonly buy.
**Dunkin Donuts Coffee**** $2.04
Please help, I know I am missing something. Thanks
To calculate the Consumer Price Index (CPI) for this year and five years from now, you will need to gather some information and follow a few steps.
Step 1: Collect price data for the current year and the base year. The base year is usually chosen as a reference point for comparison. Let's assume the base year is the previous year.
For example, let's say you have the price of Dunkin Donuts Coffee in the current year as $2.04, and you need the price in the base year (previous year).
Step 2: Divide the current year price by the base year price and multiply by 100 to get the CPI for this year.
CPI = (Current Year Price / Base Year Price) x 100
Assuming the base year price is $2.00:
CPI for this year = ($2.04 / $2.00) x 100 = 102
So, the CPI for this year is 102.
Step 3: Projecting the price five years from now requires estimating the average annual inflation rate. Inflation represents the change in prices over time. Let's assume an average annual inflation rate of 3%.
Step 4: Calculate the projected CPI for five years from now using the assumption of a 3% average annual inflation rate. To do this, you can use the following formula:
Projected CPI = CPI for this year x (1 + Average Annual Inflation Rate)^Number of Years
CPI for five years from now = 102 x (1 + 0.03)^5 ≈ 115.93
So, the projected CPI for five years from now is approximately 115.93.
Step 5: Finally, calculate the projected price of an item using the projected CPI. You already have the current price of Dunkin Donuts Coffee as $2.04, so you can use the following formula:
Projected Price = Current Price x (Projected CPI / CPI for this year)
Projected Price = $2.04 x (115.93 / 102) ≈ $2.31
Hence, the projected price of Dunkin Donuts Coffee in five years from now would be around $2.31.