1) The price of Gas is $3.39 in December 2011 and it was $4.10 in December 2008. What is the average inflation rate for gas over these three years?
2) If you anticipate an annual inflation rate of 3.2% in the current economy, and can make an investment in a stock that is expected to appreciate at 12.0% compounded annually. What would be your inflation-free rate of return for this investment (pick the closest answer)?
3) A proposed project that requires an investment of $13,278 (year 0) is expected to generate a series of 4 equal annual net income of $6,000 each in constant dollars. Assuming the average inflation rate of 3.5%, and the market interest rate of 10% during this inflationary period, what is the equivalent net present worth (NPW) in actual dollars for this project?
4) Convert the Actual Dollar payment of $1,850 to be made 12 years from now into Constant Dollars to be made 12 years from now (given the inflation rate f = 3.5%, inflation-free interest rate i' = 7.5% annual).