The cost of a garbage pick up in Green Valley is $4.5m for year 1. Estimate the cost in year 3 in year 1 dollars and in nominal dollars. The population is increasing at 6%, the nominal cost per ton is increasing at 5% and the inflation rate is estimated at 4%.

 

let X=the estimation cost in 3 years

x=$3.64m

Step-by-step explanation

given this formula you can solve the problem

Rate of Inflation = (CPIx+1 - CPIx ) / CPIx

Real Interest Rate=Nominal Interest Rate- Inflation (expected or actual)

base on the problem

nominal rate is 5% and your inflation rate =4%

Real interest =(5%-6%)=1%

calculating estimation in 3years

I=((CPI(this year)-CP(last year)) / CP(last year)

substitute value and let x is the cost in 3 years

4%=((X-3.5)/3.5

x=3.64

therefore the answers estimated cost in 3years is $3.64m