Inflation

Sarah lend 1000$ at 6% yearly interest in January 2014. In January 2014, price of one medium cup of coffee was 2$.

1. How many cups of coffee Sarah could buy in January 2014, and in January 2015 if there was no inflation?1pt
2. How many cups of coffee Sarah could buy (in January 2015) if yearly inflation rate was 2.5%? 1pt
3. Based on situations (a) & (b), explain the cost of inflation. 2pt