Question

Suppose your salary in 2012 is $65,000 if the annual inflation rate is 4%, what salary do you need to make in 2021 in order for it to keep up with inflation? round your answer to the nearest cent, if necessary.

Answer 1

The salary in 2012 was $65,000.

If the inflation rate is 4%, the salary should increase at least 4% per year to keep up with inflation.

Then, we can calculate the salary adjusted by inflation in 2021 as:

$S_{2021}=S_{2012}\cdot(1+i)^{2021-2012}=S_{2012}\cdot(1+i)^9$

Replacing with the data, we get:

$\begin{gathered} S_{2021}=S_{2012}\cdot(1+i)^9 \\ S_{2021}=65000\cdot(1+0.04)^9 \\ S_{2021}=65000\cdot1.04^9 \\ S_{2021}\approx65000\cdot1.4233118 \\ S_{2021}\approx92515.27 \end{gathered}$

Answer: the adjusted salary to keep up with inflation should be $92,515.27 in 2021.