Question

Suppose you have $200,000 cash today and you can invest it to become worth $2,000,000 in 13 years. What is the present purchasing power equivalent of this $2,000,000 when the average inflation rate over the first six years is 4​% per​ year, and over the last seven years it will be 8​% per​ year?

Suppose you have $200,000 cash today and you can invest it to become worth $2,000,000 in 13 years. What is the present purchasing power equivalent of this $2,000,000 when the average inflation rate over the first six years is 4% per year, and over the last seven years it will be 8% per year? Click the icon to view the interest and annuity table for discrete compounding when i = 4% per year. Click the icon to view the interest and annuity table for discrete compounding when i = 8% per year. i More Info The present purchasing power equivalent is $ thousand. (Round to two decimal places.) i More Info Capital Recovery Factor To Find A Given P AF A/P Discrete Compounding; i = 4% Single Payment Uniform Series Compound Compound Sinking Amount Present Amount Present Fund Factor Worth Factor Factor Worth Factor Factor To Find F To Find P To Find F To Find P To Find A Given P Given F Given A Given A Given F F/P P/F FIA PIA 1.0400 0.9615 1.0000 0.9615 1.0000 1.0816 0.9246 2.0400 1.8861 0.4902 1.1249 0.8890 3.1216 2.7751 0.3203 1.1699 0.8548 4.2465 3.6299 0.2355 1.2167 0.8219 5.4163 4.4518 0.1846 1.2653 0.7903 6.6330 5.2421 0.1508 1.3159 0.7599 7.8983 6.0021 0.1266 1.3686 0.7307 9.2142 6.7327 0.1085 1.4233 0.7026 10.5828 7.4353 0.0945 1.4802 0.6756 12.0061 8.1109 0.0833 1.5395 0.6496 13.4864 8.7605 0.0741 1.6010 0.6246 15.0258 9.3851 0.0666 1.6651 0.6006 16.6268 9.9856 0.0601 1.7317 0.5775 18.2919 10.5631 0.0547 1.8009 0.5553 20.0236 11.1184 0.0499 1.8730 0.5339 21.8245 11.6523 0.0458 Discrete Compounding; i = 8% Single Payment Uniform Series Compound Compound Capital Amount Present Amount Present Sinking Fund Recovery Factor Worth Factor Factor Worth Factor Factor Factor To Find F To Find P To Find F To Find P To Find A To Find A Given P Given F Given A Given A Given F Given P P/F FIA PIA A/F A/P 1.0800 0.9259 1.0000 0.9259 1.0000 1.0800 1.1664 0.8573 2.0800 1.7833 0.4808 0.5608 1.2597 0.7938 3.2464 2.5771 0.3080 0.3880 1.3605 0.7350 4.5061 3.3121 0.2219 0.3019 1.4693 0.6806 5.8666 3.9927 0.1705 0.2505 1.5869 0.6302 7.3359 4.6229 0.1363 0.2163 1.7138 0.5835 8.9228 5.2064 0.1121 0.1921 1.8509 0.5403 10.6366 5.7466 0.0940 0.1740 1.9990 0.5002 12.4876 6.2469 0.0801 0.1601 2.1589 0.4632 14.4866 6.7101 0.0690 0.1490 2.3316 0.4289 16.6455 7.1390 0.0601 0.1401 2.5182 0.3971 18.9771 7.5361 0.0527 0.1327 2.7196 0.3677 21.4953 7.9038 0.0465 0.1265 F/P 1.0400 0.5302 0.3603 0.2755 0.2246 0.1908 0.1666 0.1485 0.1345 0.1233 0.1141 0.1066 0.1001 0.0947 0.0899 0.0858 16

Answer 1

Present value = $ 200,000

Future value = $ 2,000,000

Inflation rate first 6 years = 4%

Last seven years inflation rate = 8%

$\large PW = 2,000,000(P/F,4\%,6)(P/F,8\%,7)$

$\large \implies PW = 2,000,000\times \frac{1}{1.04^6}\times \frac{1}{1.08^7}$

$\large \implies PW = \$ \ 922,281.87$

$\large \implies PW \approx \$ \ 922,282$

Current purchasing power = $ 922.28 thousand

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