1) You expect your cost for steel to increase 3% next year, then 5% the year after that, and finally 6% three years out. Compute the average inflation rate for your steel purchases over the next 3 years._____________
2) You plan to live in your house for 20 years, and your 20 year mortgage (principle and interest only) is $2,100/month. If you expect inflation to average 3% annually, what is your constant dollar mortgage payment on the day of your last payment?______________
3) Currently you can purchase a used 10 year old CAT 24D for $85,000. Ten years from now, you think that a comparable used machine will sell for $105,000. What is the average annual inflation rate on used equipment that you are expecting during this 10 year period?_____________