A Labor Contract Provides for a First-Year Wage of $10

Multiple Choice

A labor contract provides for a first-year wage of $10 per hour, and specifies that the real wage will rise by 3 percent in the second year of the contract and by another 3 percent in the third year. The CPI is 1.00 in the first year, 1.07 in the second year, and 1.15 in the third year. What dollar wage must be paid in the third year?

A) $10.61
B) $11.15
C) $12.20
D) $12.31