Final answer:
The approximate future value of a $10,000 investment after 3 years, with a 4% return on investment and a 2% inflation rate, adjusted for inflation, is approximately $10,594.62.
Step-by-step explanation:
To determine the approximate future value of an investment adjusted for inflation, we need to account for both the effective annual return on investment and the inflation rate.
The initial investment is $10,000, the annual inflation rate (f) is 2%, and the effective annual return on investment (i) in constant dollars is 4%. The investment horizon is 3 years.
To find the future value adjusted for inflation, we can use the formula:
Future Value = Investment × [(1 + i) / (1 + f)]n
Where n is the number of years. Substituting the values, we have:
Future Value = $10,000 × [(1 + 0.04) / (1 + 0.02)]3
This will give us:
Future Value = $10,000 × (1.04/1.02)3
Calculating the above, the future value adjusted for inflation is approximately:
Future Value = $10,000 × (1.019608)3 ≈ $10,000 × 1.059462 ≈ $10,594.62