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A retired couple has a fixed income of $3,100 per month. Assuming an annual inflation rate of 9% (compounded annually), what is the purchasing power (in dollars) of their monthly income in 5 years? (Round your answer to the nearest cent.)

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Assuming an annual inflation rate of 9% (compounded annually), the purchasing power (in dollars) of the retired couple's fixed income of $3,100 per month in 5 years is $1,934.50.

To calculate the future purchasing power of the couple's monthly income in 5 years, we can use the formula for future value with negative compound interest, showing the effect of the 9% annual inflation rate:

FV = PV * (1 - r)^n

Where: FV = Future Value

PV = Present Value

r = annual inflation rate

n = number of years

PV = $3,100 per month

r = 9% or 0.09 (9/100)

n = 5 years

FV = 3,100 * (1 - 0.09)^5

≈ 3,100 * (0.91)^5

≈ 1,934.50

Thus, the future purchasing power of the retired couple's monthly income in 5 years, considering 9% annual inflation, would be approximately $1,934.50.

User Sergiy Tykhonov
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