Question

if you hide $100,000 in a shoe box under your bed for 10 years and inflation is 7.2% each year during that 10 year period, your $100,000, after ten years, will be able to buy the equivalent of about what could buy that first year?

Answer 1

The purchasing power of $100,000 hidden in a shoe box for 10 years with a 7.2% inflation rate annually will drop to approximately $50,834.67 in today's dollars, meaning it can only buy about half as much as it could in the first year.

Step-by-step explanation:

If you hide $100,000 in a shoe box under your bed for 10 years and inflation is at 7.2% each year, to understand how much you will be able to buy after that period, you need to calculate the decline in the purchasing power of that money over the 10-year period. This can be expressed using the formula PV = FV / (1 + r)n, where PV is the present value, FV is the future value, r is the annual inflation rate, and n is the number of years.

Using the numbers given: PV = $100,000 / (1 + 0.072)10. After 10 years, the purchasing power of your $100,000 will be equivalent to approximately $50,834.67 in today's dollars, meaning you can buy roughly half of what you could have bought in the first year.

More money is better, but inflation works against this principle by reducing the real value over time. It is important to consider the effects of inflation and the power of compound interest when saving and investing.