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5-6 Time Value: As part of your financial planning, you wish to purchase a new car exactly 5 years from today.

5-6 Time Value:

As part of your financial planning, you wish to purchase a new car exactly 5 years from today. The car you wish to purchase costs $14,000 today, and your research indicates that its price will increase by 2% to 4% per year over the next 5 years.

a. Estimate the price of the car at the end of 5 years if inflation is (1) 2% per year and (2) 4% per year.

b. How much more expensive will the car be if the rate of inflation is 4% rather than 2%?

c. Estimate the price of the car if inflation is 2% for the next 2 years and 4% for 3 years after that.
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