If you purchase an automobile for $20,000 in 2004 and inflation is 4 percent, how much would a similar automobile sell for four years from then? To solve this problem you would use the formula for the
A) bank discount.
B) future value of a lump sum.
C) internal rate of return.
D) present value of a lump sum.

Question

Quizplus · Accepted Answer

The correct formula to use in this scenario is the future value of a lump sum, which calculates how much a present amount will grow to at a certain future date given a specific rate of inflation or interest rate. In this case, it helps to determine the increased cost of an automobile after four years due to inflation.

If You Purchase an Automobile for $20,000 in 2004 and Inflation