How to determine after inflation price ?

Say if a thing costs 100 now then after 20 years it would cost 321 at a 6% annual inflation rate. How the figure of 321 was determined.

How to determine after inflation price ?

simply use this formula

Xn = Xo (1 + 1/(r/100))^t

so 321 = 100 (1 + 1/(6/100)^20

Cool :)

The RHS = 100 (1.06)^20

= 100 * 3.207135472

= 320.71 approx 321.00

How to determine after inflation price ?

100 x (1.06)^6 i.e 1.06 to the power 6.

VR

How to determine after inflation price ?

Compound inflation: if something costs 1 now, then after a year it will be 6% more costly, so it costs 1.06. Another year of inflation will take this 1.06 item and make it cost 6% more than that, so it will be 1.06 + .06*1.06 which is 1.06虏, which is 1.1236. Continuing this trend, after n years it will costs 1.06^n times what it cost at the beginning. 1.06^20=3.2071..., so a 100 item will cost 320.71... or 321 to the nearest unit.

How to determine after inflation price ?

To make it simple, consider multiplication as repeated addition. Increase 100 to 106. (first year)

Then 106 increases to 112.36 (second year) and so on. if you do it 20 times you should get the desired answer.

Since the above method is cumbersome and time taking, mathematicians invented an elegant technique called compounding which is 1.06^20. which means i multiply 100 by 1.06, repeating 20 times. It is a sort of mathematical short hand expression. Then they invented the maths of logarithms, index numbers etc. to deal with the problem. A complex method to solve a simple problem which is faster to compute.

How to determine after inflation price ?

simple formula

price after infl = price before infl (1 + Rate inflation)^time

x = 100(1+.06)^20

calculate yourself

How to determine after inflation price ?

Use Formula:

Final Price = Price * ( ( (100 + rate)/100 )^Years )

How to determine after inflation price ?

you determine, or use annual inflation rate by multiplying the % by the number. 100 x 6% is 6. So what cost you 100 a year ago, would now cost 106 dollars. You would then multiply 106 x 6% to find out what the cost would be in a year, etc.

How to determine after inflation price ?

1.06 raised to the 20th power = 3.2071

$100 multiplied by the above - $320.71 which is rounded to $321.