Question

Problem 3. Your friend Jordyn, who is a detective', has been earning $45,000 a year in salary since 2012 without a raise. She is now up for a performance evaluation. Knowing that a positive review usually leads to a salary increase, she would like her boss to know how much of a raise they should give her in 2020 in order to account for the inflation. Help Jordyn draft a short, but formal, email to her boss to request a salary increase based on your calculations.

Answer 1

Jordyn should request a salary increase to $52,650 in 2020 to account for an average assumed inflation rate of 2% per year since 2012, representing a 17% raise from her current salary.

Step-by-step explanation:

To calculate the salary increase Jordyn should request to account for inflation since 2012, we first need to know the rate of inflation for each year until 2020. However, this problem does not provide specific inflation rates, so we will assume an average inflation rate for the purpose of demonstration. Let's say the average inflation rate is 2% per year. To find the cumulative inflation rate over 8 years (from 2012 to 2020), we use the formula for compound interest: (1 + inflation rate) raised to the number of years.

Using the assumed average inflation rate of 2% or 0.02, the formula becomes (1 + 0.02)^8. The calculation yields a cumulative inflation rate of approximately 1.17. This means that the value of money has decreased by 17% over that period. Jordyn's original salary of $45,000 would need to be multiplied by 1.17 to determine its equivalent value in 2020 dollars, resulting in a salary of $52,650. Therefore, to maintain the same purchasing power as in 2012, Jordyn's salary should be increased to $52,650 in 2020. The percentage change or raise she is seeking would be (($52,650 - $45,000) / $45,000) * 100, which is approximately 17%.