Question

If inflation averages 3.5% each year from 2005 to 2020, what is the purchasing power in 2005 dollars of $50,000 in 2020?

Answer 1

To maintain the purchasing power, now we will need $279,246.34.

Step-by-step explanation:

Giving the following information:

Inflation averages 3.5% each year from 2005 to 2020

Nominal value= $50,000

We need to determine the nominal amount of money required to maintain the purchasing power.

We will use the following formula:

Nominal value= current value*(1+r)^n

r= inflation rate

Nominal value= 50,000*(1.035^50)

Nominal value= $279,246.34