Answer to Question #133806 in Financial Math for ally

Question

Based on the Consumer Price Index, the rate of inflation in the United States between 1980 and 2011 was about 3.3% per year. What salary in 1980 would be equivalent to a $51,000 salary in 2011? Round your final answer to two decimal places.

Answer 1

solution

number of years (n) between 1980 and 2011

$n=2011-1980=31years$

Inflation rate (r) $=3.3\%$ per year

Let X be the salary in 1980. The salary equivalent in 2011 is given by:

$X*(1+r)^n$

Therefore

$X*(1+0.033)^{31}= 51,000$

$X = \frac{51,000}{(1+0.033)^{31}}$

$=18,640.61$

answer: 1980 salary would be $18,640.61