The Inflation Problem. If a person makes $30,000 in 2004 and the inflation rate is 4% annually, how much is this salary worth in the year 2008 (in terms of 2004 dollars)?
Would I just add by 4% for 4 years?
No, his salary would be worth LESS than $30,000 in the year 2008
value = 30000(1 - .04)4 = $25,480.40
I would not have figured that out. Thank you
just noticed a typo
my last line should have been
value = 30000(1 - .04)^4 = $25,480.40
if a movie ticket cost $8 for admission, what would the cost be in 7 years, assuming an inflation rate of 3%?
To find out how much $30,000 in 2004 is worth in terms of 2004 dollars in the year 2008, you need to apply the annual inflation rate for each year.
To calculate the accumulated inflation over the four-year period, you would use the compound interest formula:
Future Value = Present Value * (1 + interest rate)^number of years
In this case, the present value (PV) is $30,000, the interest rate (or inflation rate) is 4% per year, and the number of years (n) is 4.
So, the future value (FV) of the salary in 2008 is calculated as:
FV = $30,000 * (1 + 0.04)^4
FV = $30,000 * (1.04)^4
FV = $30,000 * 1.16986
FV = $35,095.80 (rounded to two decimal places)
Therefore, the salary of $30,000 in 2004 is worth approximately $35,095.80 in terms of 2004 dollars in the year 2008.