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%?

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Business

Alberto Barrera

5 March, 21:15

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%?

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Answers (1)

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Yasmine Mosley · Answer 1

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