Question

Suppose your salary in 2012 is $65,000 if the annual inflation rate is 4%, what salary do you need to make in 2021 in order for it to keep up with inflation? round your answer to the nearest cent, if necessary.

Answer 1

The salary in 2012 was $65,000.

If the inflation rate is 4%, the salary should increase at least 4% per year to keep up with inflation.

Then, we can calculate the salary adjusted by inflation in 2021 as:

`S_(2021)=S_(2012)\cdot(1+i)^(2021-2012)=S_(2012)\cdot(1+i)^9`

Replacing with the data, we get:

`\begin{gathered} S_(2021)=S_(2012)\cdot(1+i)^9 \\ S_(2021)=65000\cdot(1+0.04)^9 \\ S_(2021)=65000\cdot1.04^9 \\ S_(2021)\approx65000\cdot1.4233118 \\ S_(2021)\approx92515.27 \end{gathered}`

Answer: the adjusted salary to keep up with inflation should be $92,515.27 in 2021.