Question

The purchasing power (real value of money) decreases if inflation is present in the economy. For example, the purchasing power of $R after t years of 6% inflation is given by the model shown below. PER(0.94) dollars What will be the purchasing power of $50,000 after 20 years of 6% inflation? after 20 years. The purchasing power of $50,000 will be about $ (Round to the nearest cent as needed.)

Answer 1

The purchasing power of $50,000 after 20 years of 6% inflation will be approximately $15,580.25, calculated using the present value formula.

Step-by-step explanation:

The student is asking about the impact of inflation on the purchasing power of money over time. To calculate the real value of money after 20 years with an inflation rate of 6%, we can use the formula PV = FV / (1 + i)^t, where PV is the present value (purchasing power), FV is the future value (initial amount of money), i is the inflation rate, and t is the number of years. In this case, the future value (FV) is $50,000, the inflation rate (i) is 6% or 0.06, and the time (t) is 20 years.

The calculation would be as follows:

PV = $50,000 / (1 + 0.06)^20

PV = $50,000 / (1.06)^20

PV = $50,000 / 3.2074

PV = $15,580.25

Therefore, the purchasing power of $50,000 after 20 years of 6% inflation will be approximately $15,580.25, rounded to the nearest cent.