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You are promised $1 million in 20 years. If the inflation rate averages 6 percent annually over the next 20 years, what is the real value of this $1 million in today's dollars?

Guest Sep 13, 2014

Best Answer 

 #1
avatar+91482 
+5

Well that would depend on how often the money is compounding but to make it easy I will say it is compounding annually.

 

P(1.06^20)=1000000

 

p=1000000/(1.06^20)

 

$${\frac{{\mathtt{1\,000\,000}}}{\left({{\mathtt{1.06}}}^{{\mathtt{20}}}\right)}} = {\mathtt{311\,804.726\: \!886\: \!084\: \!594\: \!591\: \!2}}$$

 

A million dollars in 20 years is equivalent to    $311 804  today.

Melody  Sep 14, 2014
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1+0 Answers

 #1
avatar+91482 
+5
Best Answer

Well that would depend on how often the money is compounding but to make it easy I will say it is compounding annually.

 

P(1.06^20)=1000000

 

p=1000000/(1.06^20)

 

$${\frac{{\mathtt{1\,000\,000}}}{\left({{\mathtt{1.06}}}^{{\mathtt{20}}}\right)}} = {\mathtt{311\,804.726\: \!886\: \!084\: \!594\: \!591\: \!2}}$$

 

A million dollars in 20 years is equivalent to    $311 804  today.

Melody  Sep 14, 2014

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