At the end of Year 3, steel prices will have increased by what percentage over today’s price?

The following question requires your selection of CCC/CCE Scenario 4 (2.7.50.1.1) from the right side of your split screen, using the drop down menu, to reference during your response/choice of responses.

At the end of Year 3, steel prices will have increased by what percentage over today’s price? (round to 1 decimal)
A . 8.7%
B . 8.2%
C . 4.6%
D . 8.0%

View Answer

Answer: B

Explanation:

To calculate the total percentage increase in steel prices over three years, we compound the inflation rates for each year:

Year 1: 2.5%

Year 2: 2.5%

Year 3: 3.0%

The formula to calculate the total percentage increase is:

Total Increase=(1+Rate Year 1)×(1+Rate Year 2)×(1+Rate Year 3)−1text{Total Increase} = (1 + text{Rate Year 1}) times (1 + text{Rate Year 2}) times (1 + text{Rate Year 3}) – 1Total Increase=(1+Rate Year 1)×(1+Rate Year 2)×(1+Rate Year 3)−1

Total Increase=(1+0.025)×(1+0.025)×(1+0.03)−1text{Total Increase} = (1 + 0.025) times (1 + 0.025) times (1 + 0.03) – 1Total Increase=(1+0.025)×(1+0.025)×(1+0.03)−1 text{Total Increase} = 1.025 times 1.025 times 1.03 – 1 approx 1.082 – 1 = 0.082 text{ or 8.2%}

So, the correct answer is B. 8.2%.