Question

The purchasing power P of a fixed income of $20,000 per year (such as a pension) after t years of 7% inflation can be modeled by

P = 20,000(1.07)−t.
(a)
Find the purchasing power after 5 years. (Round your answer to the nearest dollar.)
$
(b)
Find the purchasing power after 20 years. (Round your answer to the nearest dollar.)

Answer 1

P(t) = 20,000(1.07^t)

(a) P(5) = 20,000(1.07⁵) = $28,051

(b) P(20) = 20,000(1.07²⁰) = $77,394