Problema Solution
Suppose that an insurance agent offers you a policy that will provide you with a yearly income of $70,000 in 30 years. What is the comparable salary today, assuming an inflation rate of 5% compounded annually?
Answer provided by our tutors
FV = $70,000 the future value
r = 0.05 or 5% annual rate
n = 30 compounding periods
PV = present value or the comparable salary today
FV = PV * (1 + r)^n
PV = FV / (1 + r)^n
PV = 70,000 / (1+ 0.05)^30
PV = $16,196.42
the comparable salary today is $16,196.42.