Question

alanna places $10, 000 in a savings account for 6 years with no interest. inflation averages 3.5% per year over this period.
what will the present value of the $10, 000 investment be at the end of the 6 years?
use this formula to calculate the present value while accounting for inflation:
present value = $\frac{future value}{(1 + annual inflation rate)^{number of years}}$
$7, 500.00
$10, 000.00
$12, 292.55
$8, 135.01

Explanation:

Step1: Identify given values

Future value = $\$10,000$, annual inflation rate = $3.5\% = 0.035$, number of years = $6$

Step2: Substitute into formula

$$\text{present value} = \frac{10000}{(1 + 0.035)^6}$$

Step3: Calculate denominator first

$(1 + 0.035)^6 = 1.035^6 \approx 1.229255$

Step4: Compute present value

$\text{present value} = \frac{10000}{1.229255} \approx 8135.01$

Answer:

$8,135.01$