Final answer:
$1,000 from 7 years ago, with an average inflation rate of 4% per year, has the same purchasing power as approximately $1,316.90 today.
Step-by-step explanation:
To determine the present value of $1,000 from 7 years ago accounting for an average inflation rate of 4% per year, the formula for compound inflation is used. First, we find the present value factor by raising the inflation rate plus 1 to the power of the number of years, which is 7 in this case. The formula would be (1 + 0.04)7. This calculates to approximately 1.3169, which then needs to be multiplied by the initial amount of $1,000 to find the equivalent amount in today's dollars.
The calculation is as follows:
Present Value = Original Amount × (1 + Inflation Rate)Number of Years
Present Value = $1,000 × (1 + 0.04)7
Present Value = $1,000 × 1.3169
Present Value = $1,316.90
Therefore, $1,000 from 7 years ago has the same purchasing power as approximately $1,316.90 in today's dollars, making option D the correct choice.