Question

An elderly couple has a fixed income of $3,700 per month.Assuming an inflation rate of 8% compounded annually what is the purchase power in dollars of their monthly income in five years round your answer to the nearest cent

Answer 1

Present value formula is given by:

$P=\frac{A}{(1+\frac{r}{n})^{nt}}$

Putting given values in equation:

$P\text{ = }\frac{3700}{(1\text{ + }\frac{0.08}{1})^{5\times1}}$

So:

P = $2518.16