posted by jacque on .
Suppose an insurance agent offers you a policy that will provide you with a yearly income of $120,000 in 30 years. What is the comparable annual salary today, assuming an inflation rate of 2%?. (Round your answer to the nearest cent.)
You are looking for the present value of this investment, so...
Interest = principal x rate x time
I = 120,000 x .02 x 1 [which is what it's worth at year 1]
No insurance company works with simple interest over 30 years
let the equivalent current salary be x
x(1.02)^30 = 120 000
x = 120000/1.02^30 = $66, 248.51
u r right
it's compound interest, not simple.