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Average yearly inflation. If an item costs C at one time and D n years later,...

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Basic Math

Average yearly inflation. If an item costs C at one time and D nyears later, and Cxn = D, then we call x the averageannual inflation factor (for example, x = 1.04 refers to aninflation rate of 4%).

At a 6% average annual inflation factor, it will take 12 yearsfor the house to double.  If 6% is replaced by r%,bankers use 72/r to estimate the number of years. This is calledthe rule of 72. Graph this estimate and the actual answer over theinterval 1 <= r <= 12. Comment on the accuracy of the rule of72.

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