Suppose you’ll have an annual nominal income of $40,000 for each of the next 3 years, and the inflation rate is 4 percent per year. Find the real value of your $40,000 salary for each of the next 3 years.

future value: 40,000 (1/(1.04)^n

You can use google calculator for this.

put this in the google search window, for year 3
40000/(1.04)^3

can you explain why you use that formula?

To find the real value of your $40,000 salary for each of the next 3 years, you need to adjust it for inflation. Here's how you can calculate it step by step:

Step 1: Calculate the inflation-adjusted amount for each year.
To do this, you need to multiply the nominal income by the inflation rate, and then subtract that amount from the nominal income to get the real income.
For Year 1:
Real income = Nominal income - (Nominal income * Inflation rate)
Real income for Year 1 = $40,000 - ($40,000 * 0.04) = $40,000 - $1,600 = $38,400

For Year 2:
Real income = Nominal income - (Nominal income * Inflation rate)
Real income for Year 2 = $40,000 - ($40,000 * 0.04) = $40,000 - $1,600 = $38,400

For Year 3:
Real income = Nominal income - (Nominal income * Inflation rate)
Real income for Year 3 = $40,000 - ($40,000 * 0.04) = $40,000 - $1,600 = $38,400

Step 2: Calculate the real value of your $40,000 salary for each year.
The real value of your $40,000 salary is the same as the real income calculated above.

Real value of $40,000 salary for Year 1 = $38,400
Real value of $40,000 salary for Year 2 = $38,400
Real value of $40,000 salary for Year 3 = $38,400

So, the real value of your $40,000 salary for each of the next 3 years is $38,400.

To find the real value of your salary, we need to adjust it for inflation. The real value of money is its purchasing power, considering the effects of inflation.

Here's how you can calculate the real value of your salary for each of the next three years:

Step 1: Calculate the inflation-adjusted salary for each year.

Year 1:
Inflation rate = 4%
Nominal income = $40,000
Inflation-adjusted salary = Nominal income / (1 + inflation rate)
= $40,000 / (1 + 0.04)
= $40,000 / 1.04
≈ $38,461.54

Year 2:
To calculate the inflation-adjusted salary for the second year, we need to consider the inflation rate again. However, this time, the starting point will be the inflation-adjusted salary from Year 1.

Inflation rate = 4%
Nominal income = $40,000
Inflation-adjusted salary (Year 2) = Inflation-adjusted salary (Year 1) / (1 + inflation rate)
= $38,461.54 / (1 + 0.04)
= $38,461.54 / 1.04
≈ $37,033.67

Year 3:
Again, consider the inflation rate and the inflation-adjusted salary from the previous year.

Inflation rate = 4%
Nominal income = $40,000
Inflation-adjusted salary (Year 3) = Inflation-adjusted salary (Year 2) / (1 + inflation rate)
= $37,033.67 / (1 + 0.04)
= $37,033.67 / 1.04
≈ $35,603.17

Therefore, the real value of your $40,000 salary for each of the next three years will be approximately:
Year 1: $38,461.54
Year 2: $37,033.67
Year 3: $35,603.17