posted by Nadia23 on .
If a person makes $30,000 in 2004 and the inflation rate is4% annually, how much is this salary worth in the year 2008 (in terms of 2004 dollars)?
30,000 * 0.04 = 1,200
30,000 - 1,200 = $28,800
That's how much it's worth in 2005. Repeat those steps for the next three years.
$28,800 * 0.04 =
Is it $24,773?
I came up with 25,480.47.
Check your figures -- and I'll check mine again and will repost If I'm wrong.
You are correct! I multiplied 28,000 instead of 28,800.
Actually, I found a minor discrepancy. I think the final answer should be #25,480.40
Nadia 23, miguel, etc etc. I interpret the problem a little differently than Ms. Sue.
Here is how I see it.
30,000*0.04 = 1200 and 30,000-1200 - 28,800 at the end of the first year.
For year 2, the salary STILL is 30,000 (not 28,800); therefore, the 30,000*0.04 is another 1200 lost in purchasing power. Thus, 28,800 - 1200 = 27,600.
For year 3, it is 27,600 - another 1200 = 26,400 and at the end of year 4 it is 26400 - 1200 = 25,200.
As I read the problem, the salary stays the same at 30,000/year. The way Ms. Sue has solved it is that the salary is 30,000 only for the first year and it decreases for years 2-4.