Question

At an inflation rate of 9%, the purchasing power of $1 would be cut in half in just over 8 years (some calculators round to 9 years). How long, to the nearest year, would it take for the purchasing power of $1 to be cut in half if the inflation rate were only 4%?

Answer 1

Answer:

18 years

Explanation:

For computing the number of years, we need to apply the future value formula i.e shown below:

Future value = Present value × (1 + interest rate)^number of years

where,

Future value = 2

Present value = 1

Interest rate = 4%

So, the number of years is

2 = 1 × (1 + 0.04)^number of years

After solving this, the number of years is 17.66 i.e 18 years

We simply applied the above formula so that the number of years could come