To determine the future price of a loaf of bread given an initial price and an inflation rate, we can follow a step-by-step process to apply the inflation rate over multiple years. Let's solve this problem step-by-step:
1. Initial Price:
The current average price of a loaf of bread is K5.00.
2. Inflation Rate:
The inflation rate is given as 5%. In decimal form, this is 0.05.
3. Price in One Year:
To calculate the price of the loaf of bread after one year, we apply the inflation rate to the initial price.
[tex]\[ \text{Price after one year} = \text{Initial Price} \times (1 + \text{Inflation Rate}) \][/tex]
Substituting the given values,
[tex]\[ \text{Price after one year} = 5.00 \times (1 + 0.05) = 5.00 \times 1.05 = 5.25 \][/tex]
4. Price in Two Years:
Now we need to calculate the price after the second year. We will use the price after one year as the new base price and apply the same inflation rate again.
[tex]\[ \text{Price after two years} = \text{Price after one year} \times (1 + \text{Inflation Rate}) \][/tex]
Substituting the value obtained for the price after one year,
[tex]\[ \text{Price after two years} = 5.25 \times 1.05 = 5.5125 \][/tex]
Therefore, the average price of a loaf of bread in two years will be approximately K5.5125.
