Question

A family spends $45,000 on living expenses. With an annual inflation rate of 2 percent,

they can expect to spend approximately_ _ in three years.

A 50,045
B 46,045
C 47,745
D 45,345
E 44,300

Answer 1

C 47,745

Step-by-step explanation:

Using the compound interest method to calculate the value.

Inflation rate becomes the interest rate:

Compound interest formular = FV = PV × (1+r)n

FV = future value

PV , present value current amount the family is earning: $45,000

R = interest rate :which is inflation rate

N = number of years : 3

FV = 45,000(1+2/100)3

=45,000(1+0.02)3

=45,000(1.02)3

=45,000x 1.061

=47,745