Question

flation causes things to cost more, and for our money to buy less (hence your grandparents saying "In my y, you could buy a cup of coffee for a nickel"). Suppose inflation decreases the value of money by 4% each ar. In other words, if you have $1 this year, next year it will only buy you $0.96 worth of stuff. How much ill $100 buy you in 25 years?Inflation causes things to cost more, and for our money to buy less (hence your grandparents saying "In my day, you could buy a cup of coffee for a nickel"). Suppose inflation decreases the value of money by 4% each year. In other words, if you have $1 this year, next year it will only buy you $0.96 worth of stuff. How much will $100 buy you in 25 years?

Answer 1

Using the future value formula that accounts for a 4% annual inflation rate, $100 today will have the purchasing power of approximately $37.50 in 25 years.

Step-by-step explanation:

To calculate how much $100 will buy you in 25 years with an annual inflation rate of 4%, you can use the formula for the future value of a present amount under inflation:

Future Value = Present Value / (1 + Inflation Rate)^Number of Years

Firstly, we take the current value of $100 and apply the formula with an inflation rate of 0.04 (4% expressed as a decimal).

Future Value = $100 / (1 + 0.04)^25

Next, include the inflation rate:

Future Value = $100 / (1.04)^25

Then, calculate the denominator:

(1.04)^25 ≈ 2.66634

Now divide the current value by this result:

Future Value ≈ $100 / 2.66634

Future Value ≈ $37.50

Thus, in 25 years, you would be able to buy approximately $37.50 worth of goods with what is $100 today.