Question

Your client has $2,756,000 now. Calculate purchasing power of this amount in 16 years from now. The average rate of inflation is 8.54 percent, compounded annually. (You should calculate PV of that amount). Round the answer to two decimal places.

Answer 1

The purchasing power of $2,756,000 in 16 years, given an 8.54% annual inflation rate, would be approximately $698,412.80 when rounded to two decimal places.

Step-by-step explanation:

To calculate the purchasing power of $2,756,000 in 16 years from now with an average inflation rate of 8.54 percent, compounded annually, you can use the present value (PV) formula:

PV = FV / (1 + r)^n

Where:
PV = present value
FV = future value ($2,756,000)
r = annual inflation rate (8.54% or 0.0854)
n = number of years (16)

Substitute the known values into the formula:

PV = $2,756,000 / (1 + 0.0854)^16

Perform the calculation:

PV = $2,756,000 / (1.0854)^16
PV = $2,756,000 / (3.94601)
PV = $698,412.80

The purchasing power of $2,756,000 in today's dollars, after accounting for 16 years of inflation at a rate of 8.54%, is approximately $698,412.80, rounded to two decimal places.