Question

assuming that annual inflation rate of of 3.5% how much did an item that sells for rs 100 today cost four years ago

Answer 1

deflation 3 years before deflection

Answer 2

Assuming that the price of the item four years ago was the present value of 'P' and taking the future value 'A' of the item as Rs. 100, then we can say that 'i' = 0.035 and 'n' = 4.

Then from the formula of compound interest, we can use it as follows. P = A / (1+i) raised to the power 'n'.

If we put the values in this formula, we can get the value of P as 87.1442.

Hence, the cost of the item four years ago was Rs. 87.14.