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Unformatted text preview: gasoline prices will increase at 12% per year, compounded annually, for the next eight years. The auto manufacturer thinks that the improvements in auto design will keep pace with the increase in gasoline cost so that the fuel cost will remain constant. To achieve this, what will be the rate of gas consumption of new automobiles eight years from now? Problem 4: A person bought a 5% tax-free municipal bond which cost $1,000 and will pay $50 interest each year for 20 years. The bond will mature at the end of the 20 years and return the original $1,000. If there is 2% annual inflation during this period, what rate of return will the person receive after the effect of inflation has been accounted for?----- END -----...
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- Spring '08