Question

The rate of increase of the price of sugar is observed to be two percent more than the inflation rate expressed in percentage. The price of sugar, on January 1, 1994, is Rs. 20 per kg. The inflation rate for the years 1994 and 1995 are expected to be 8% each. The expected price of sugar on January 1, 1996 would be

• A. Rs.23.60
• B. Rs.24.00
• C. Rs.24.20
• D. Rs.24.60

Hint:

When percentage growth is compounding annually, use successive multiplication or exponential growth formula.

Answer 1

The Correct Option is C

Given: Inflation rate = 8% per year.
So, the sugar price increases by 2% more than inflation = \( 8% + 2% = 10% \) per year.
Step 1: Price on January 1, 1994 = Rs. 20
Step 2: Increase in 1994 = 10% of 20 = 2
\[ \text{Price on Jan 1, 1995} = 20 + 2 = Rs.22 \] Step 3: Increase in 1995 = 10% of 22 = 2.2
\[ \text{Price on Jan 1, 1996} = 22 + 2.2 = \boxed{Rs.24.20} \] Alternatively, using compound growth: \[ \text{Final Price} = 20 \times (1.10)^2 = 20 \times 1.21 = 24.20 \]