In 1978, a kilogram of paper was sold at Rs 25.
IBM aptitude question, verified with a worked answer. Free to practise - no sign-up.
In 1978, a kilogram of paper was sold at Rs 25. If the paper price increases annually at 1.5% more than the inflation rate, and the inflation rate is 6.5% per year, what will be the price of a kilogram of paper after 2 years?
Show answer & explanation
The paper price increases at 1.5% more than the inflation rate. With inflation at 6.5%, the effective annual increase rate is 6.5% + 1.5% = 8% per year. Using compound interest formula over 2 years: Final Price = 25 × (1.08)² = 25 × 1.1664 = Rs 29.16.
Step-by-step Derivation:
Step 1: Calculate effective annual growth rate
Inflation rate = 6.5% per year
Paper price increases at 1.5% more than inflation
Effective rate = 6.5% + 1.5% = 8% per year
Step 2: Apply compound growth formula
Final Price = Principal × (1 + rate/100)^n
where n = number of years = 2
Step 3: Calculate
Final Price = 25 × (1 + 8/100)²
Final Price = 25 × (1.08)²
Final Price = 25 × 1.1664
Final Price = 29.16
Answer: Rs 29.16