Question

Suppose that an insurance agent offers you a policy that will provide you with a yearly income of $40,000 in 30 years. What is the comparable annual salary today, assuming an annual inflation rate of 4% (compounded annually)? (Round your answer to the nearest cent.)

Answer 1

Answer:

$12,332.7467

Explanation:

Given that,

Yearly income, Amount = $40,000

Time period, t = 30 years

Annual inflation rate, r = 4%

Amount = Principle × (1 + r/100)^t

$40,000 = Principle × (1 + 4/100)^(30)

$40,000 = Principle × (1 + 0.04)^(30)

$40,000 = Principle × (1.04)^30

$40,000 = Principle × 3.24339751

$40,000 ÷ 3.24339751 = Principle

$12,332.7467 = Principle

Therefore, the comparable annual salary today, assuming an annual inflation rate of 4% is $12,332.7467.