ALGEBRA

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Suppose an insurance agent offers you a policy that will provide you with a yearly income of $280,000 in 20 years. What is the comparable annual salary today, assuming an inflation rate of 5%?. (Round your answer to the nearest cent.)

  • ALGEBRA -

    P = Po(1+r)^n.

    r = 0.05 = Annual % rate expressed as a decimal.

    n = 1Comp./yr * 20yrs = 2o Compounding
    periods.

    Po(1.05)^20 = 280,000
    Po = 280000 / (1.05)^20 = $105,529.06.

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