Question

Bill and Sally Kaplan have an annual spending plan that amounts to $39,500. If inflation is 3 percent a year for the next three years, what amount will the Kaplans need for their living expenses three years from now? Use Exhibit 1-A. (Round time value factor to 3 decimal places and final answer to 2 decimal places.)

Answer 1

Answer:

$41,162.71

Step-by-step explanation:

We have the formula to find out the future value of an amount:

FV = PV $(1+ r)^{n$ when:

- PV is the present value

- r : interest rate or inflation rate

- n is the duration

So that, we substitute PV = $39,500, inflation rate = 3% and duration = 3 into the above fomula, we have:

FV = 39,500x$(1+ 0.03)^{3}$ = 41,162.71  is the amount  Kaplans need for their living expenses three years from now

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