Suppose 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 calculate the comparable salary today, considering the effect of inflation, we need to account for the growth of prices over time. The formula to calculate the future value of an investment or income adjusted for inflation is:
FV = PV * (1 + r)^n
Where:
FV = Future Value (or future salary in this case)
PV = Present Value (or income of $50,000)
r = Inflation rate (6% or 0.06)
n = Number of years (30)
Plugging the values into the formula, we have:
FV = $50,000 * (1 + 0.06)^30
Calculating this using a calculator or by using a spreadsheet, we find:
FV = $50,000 * (1.06)^30 ≈ $336,457.68
Therefore, the comparable salary today, adjusted for inflation, is approximately $336,457.68.