Question

1. (2 points) the price of an ounce of gold was $391 in 1986, and was $636 in 2006. how does the rise in price compare to the overall rise in prices due to inflation? would it have been a good investment to buy gold in 1986 and to sell it in 2006?

Explanation:

Step1: Calculate gold price growth rate

First, find the percentage increase in gold price from 1986 to 2006.
$\text{Growth Rate of Gold} = \frac{2006\ \text{Price} - 1986\ \text{Price}}{1986\ \text{Price}} \times 100\% = \frac{636 - 391}{391} \times 100\%$
$= \frac{245}{391} \times 100\% \approx 62.66\%$

Step2: Get US inflation data (1986-2006)

Using official US inflation data, the cumulative inflation from 1986 to 2006 is approximately 92.7%.

Step3: Compare gold growth to inflation

Compare the gold price growth rate to the cumulative inflation rate.
$62.66\% < 92.7\%$

Step4: Evaluate investment quality

Since gold's price rise lagged inflation, the real value of gold decreased over the period.

Answer:

The price of gold rose by approximately 62.66% between 1986 and 2006, while the overall cumulative inflation over the same period was approximately 92.7%. The rise in gold price was smaller than the overall inflation-driven rise in prices.
No, buying gold in 1986 and selling it in 2006 would not have been a good investment, as the gold's price did not keep up with inflation, meaning its real purchasing power decreased over the 20-year period.