Problema Solution
Suppose that an insurance agent offers you a policy that will provide you with a yearly income of $50,000 in 30 years. What is the comparable salary today, assuming an inflation rate of 4% compounded annually?
Answer provided by our tutors
FV = $50,000 future value
r = 0.04 or 4% annual rate
n = 30 the number of compounding periods
PV = present value
FV = PV (1 + r)^n
PV = FV / (1 + r)^n
PV = 50,000 / (1+0.04)^30
PV = $15,415.93
The comparable salary today is $15,415.93.