Question

Your father is now planning to retire, and his employer has promised him a guaranteed, but fixed, income of $50,000 per year for the rest of his life. If the rate of inflation is 5% per year, how much in current dollars will the payment at the end of 20th year be worth?

Answer 1

$18,844.47

Explanation:

At the end of the first year, it will be worth 1/1.05 what it is today. So, at the end of the 20th year, it will be worth ...

$50,000 × 1.05^-20 ≈ $18,844.47

in today's dollars.