You have $675 today which is enough to buy 375 bottles of Diet Pepsi. If the price of Diet Pepsi is expected to increase by 4% over the next year, what approximate nominal rate would you have to earn to be able to buy 400 bottles of Diet Pepsi next Year?

Question

Kade Molina

Business

26 December, 10:32

You have $675 today which is enough to buy 375 bottles of Diet Pepsi. If the price of Diet Pepsi is expected to increase by 4% over the next year, what approximate nominal rate would you have to earn to be able to buy 400 bottles of Diet Pepsi next Year?

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Answers (1)

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Nathalia Powers · Answer 1

Nominal growth = 10.93%

Explanation:

Giving the following information:

You have $675 today which is enough to buy 375 bottles of Diet Pepsi. The price of Diet Pepsi is expected to increase by 4% over the next year.

First, we need to find the dollar amount necessary to buy 400 bottles:

Unitary cost = 675/375 = $1.8

New unitary cost = 1.8*1.04 = $1.872

Total cost = 400bottles*1.872 = $748.8

Now we can calculate the nominal rate of growth:

r = [ (748.8 - 675) / 675]*100 = 10.93%