Question

Suppose your salary in 2012 is $60,000. If the annual inflation rate is 3%, what salary do you need to make in 2020 in order for it to keep up with inflation? Round your answer to the nearest cent, if necessary.

Answer 1

Given:

• Salary in 2012 = $60,000

,

• Annual inflation rate = 3% ==> 0.03

Let's find the salary in 2020 i order to keep up with the inflation.

Apply the exponential growth formula:

`y=a(1+r)^x`

Where:

a is the initial amount = 60000

r is the growth rate = 3% ==> 0.03

x is the number if years after 2012

Number of years from 2020 - 2012 = 8 years.

Thus, to find the salary in 2020, substitute 8 for x, 60000 for a, and 0.03 for r:

`\begin{gathered} y=60000(1+0.03)^8 \\ \\ y=60000(1.03)^8 \\ \\ y=60000(1.26677) \\ \\ y=76006.20 \end{gathered}`

Therefore, the salary will be $75