A basket of May flowers at Betty's Blooms cost $35 today. Assuming that inflation has been running at 5.1% per year for the past several years, how much did a comparable basket of flowers cost 7 years ago?
When dealing with a value of the past (7 years ago) does this value become negative?
What I know:
P=35,R=5.1%,T=7 (but 7 years ago) m I assume is 1
A= 35(1+0.051/1) ^1*-7
Let the cost 7 years ago be x , then
x(1.051)^7 = 35
x = 35/(1.051)^7 =
or
amount 7 years ago = 35(1.051)^-7
you MUST get the same answer.
No, the value does not become negative when dealing with the past. Instead, we need to account for inflation and calculate the cost of the basket of flowers 7 years ago by adjusting for the increase in prices over that period.
To find the cost of the basket of flowers 7 years ago, we can use the concept of compound interest. Inflation is essentially an increase in prices over time, so we can think of it as compounding at a certain rate per year.
Let's calculate the price of the basket of flowers 7 years ago step by step:
1. Start with the current price: $35.
2. Calculate the cumulative inflation over 7 years by multiplying the annual inflation rate (5.1%) by the number of years (7): 5.1% * 7 = 35.7%.
3. Convert the inflation rate to a decimal by dividing by 100: 35.7% / 100 = 0.357.
4. Add 1 to the inflation rate expressed as a decimal: 1 + 0.357 = 1.357.
5. Divide the current price by the inflation-adjustment factor to get the price 7 years ago: $35 / 1.357 ≈ $25.81.
Therefore, a comparable basket of flowers would have cost approximately $25.81 7 years ago, given an annual inflation rate of 5.1%.