Inflation cause things to cost more and for our money to buy less hence your grandparents saying “In my day, you could by a cup of coffee for a nickel.” Suppose inflation decreases the value of money by 5% each year. In other words if you have $1this year, next year it will only buy you $0.95 worth of stuff. How much will $100 buy you in 25 years?
To find out how much $100 will buy you in 25 years, we need to calculate the value of $100 after 25 years of 5% inflation. We can use the following formula to do this:
Value after inflation = Value before inflation / (1 + inflation rate)^number of years
Plugging in the values we know, we get:
Value after inflation = $100 / (1 + 0.05)^25
Value after inflation = $29.47
So $100 in today's money will only be able to buy you $29.47 worth of goods in 25 years if inflation decreases the value of money by 5% each year.
To calculate how much $100 will buy you in 25 years, we need to consider the annual decrease in the value of money due to inflation.
Given that inflation decreases the value of money by 5% each year, we can calculate the value of money after 25 years using the following formula:
Value after n years = Initial value × (1 - Inflation rate)^n
Plugging in the values into the formula:
Value after 25 years = $100 × (1 - 0.05)^25
Now we can calculate the result.