Inflation & Appreciation Learning Intentions: To know what inflation and appreciation is To be able to calculate inflation correctly

What is Inflation and appreciation? Inflation is the measure of the rate at which prices increase (usually as a %) Inflation is the measure of the rate at which prices increase (usually as a %) Inflation rate is given as a percentage and is called the Consumer Price Index (CPI) Inflation rate is given as a percentage and is called the Consumer Price Index (CPI) Appreciation the amount in which a rare item will increase in value over time Appreciation the amount in which a rare item will increase in value over time

Future price of an asset To estimate the cost of an item after 1 year we increase the price by the percentage inflation rate To estimate the cost of an item after 1 year we increase the price by the percentage inflation rate Example: A house is currently worth $350,000. If the inflation rate is 5% p.a. estimate the cost of the house after one year

Future price of an asset When calculating the future cost of an item several years ahead, the method of calculating is the same as compounding interest When calculating the future cost of an item several years ahead, the method of calculating is the same as compounding interest A = P (1 + R ) n x t 100 x n Where P=original price, r = inflation rate (%), n = no of payments a year, t = time of in years

Worked example 1. The cost of a house is $350,000. If the average inflation rate is 5% p.a., estimate the cost of the house after 5 years. 2. Tina purchases a rare stamp for $150. It is anticipated that the value of the stamp will rise by 8% quarterly. Calculate the value of the stamp after 10 years, correct to the nearest $10

Your task Complete the following questions from Ex 2A on pages 60-61: Q1, 2, 3, 5, 6, 7, 9, 10, 11, 12 Show all working Homework – Finish class work!