In 2009, the Office of the Under Secretary of Defense projected that a critical International Defense Construction Cost Index would increase from its value then of 3423 to 4098 in 2016. If the actual value in 2016 was 5167, (a) what was the actual building cost inflation rate between 2009 and 2016, and (b) what was the increase in the inflation rates between projected and actual?
What will be an ideal response?
(a) Time between 2009 and 2016 is 7 years
Actual inflation rate: 5167 = 3423(1 + f)?
f = (5167/3423)^(1/7) - 1
f = 0.0606 (6.06% per year)
(b) Projected inflation rate: 4098 = 3423(1 + f)?
f = (4098/3423)^(1/7) - 1
f = 0.0261 (2.61% per year)
Difference = 6.06 – 2.61
= 3.45%
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