Suppose that an insurance agent offers you a policy that will provide you with a yearly income of $50,000 in 30 years. What is the comparable salary today, assuming an inflation rate of 6% compounded annually? (Round your answer to the nearest cent.)
To find the comparable salary today, we need to adjust the future income of $50,000 for inflation, given an inflation rate of 6% compounded annually.
The formula to adjust for inflation is:
Adjusted Value = Future Value / (1 + Inflation Rate)^Number of Years
Plugging in the values into the formula:
Adjusted Value = $50,000 / (1 + 0.06)^30
Now, let's calculate the adjusted value:
Adjusted Value = $50,000 / (1.06)^30
Using a calculator, we can simplify this calculation:
Adjusted Value ≈ $50,000 / 5.743497
Adjusted Value ≈ $8,698.82
Therefore, the comparable salary today, adjusted for an inflation rate of 6% compounded annually, is approximately $8,698.82.