Question

Paul just graduated from college and landed his first​ "real" job, which pays ​$24,00 a year. In ​years, 7 what will he need to earn to maintain the same purchasing power if inflation averages ​4 percent??

Answer 1

To maintain the same purchasing power in 7 years with an inflation rate of 4%, the future value formula is used to calculate the required earnings. Similarly, Rosalie's retirement amount purchasing power in today's dollars is determined by adjusting the future payment for a 6% inflation rate over 16 years.

Step-by-step explanation:

The subject of this question is Mathematics, specifically related to finance and the concept of inflation. To determine how much Paul will need to earn in 7 years to maintain the same purchasing power, given an annual inflation rate of 4%, we use the formula for future value in terms of present value and inflation. The same concept applies to Rosalie, who is concerned about the purchasing power of her retirement amount in today's dollars given a 6% inflation rate over 16 years. We calculate the future cost using the formula: Future Value = Present Value * (1 + Inflation Rate)^Number of Years. This allows us to understand the effect of inflation on the value of money over time.

For Rosalie's case:
Present Value = $20,000
Inflation Rate = 6% or 0.06
Number of Years = 16
Future Value (Buying Power in today's dollars) = $20,000 / (1 + 0.06)^16.

Calculating this gives us the purchasing power of Rosalie's retirement amount in today's dollars, considering the inflation rate.