Homework question involving Consumer Price Index?

Hey, this is a question I have had a hard time trying to figure out-

Paula purchased a share for $20 in 1990, which she sold for $80 in 2010. If the

CPI increased by 200% between 1990 and 2010, Paula’s profit after accounting

for inflation is ???

Could someone please help to show how to work this question out.

thanks

1 Answer

Relevance
  • Anonymous
    9 years ago

    Her nominal profit is simply $80 - $20 = $60.

    We need to know her real profit, in 1990 dollars.

    Nominal = Real*CPI

    $60 = Real*200%

    $60 = Real*2

    $60/2 = Real

    $30 = Real

    Her profit after inflation is $30.

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