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

Question

As part of your financial planning, you wish to purchase a new cat exactly 5 years from today.  The car you wish to purchase coasts $14,000, 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 cars 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%?