Question

david invests $50, 000 in a bond that pays no interest over 10 years. during this time, inflation is constant at 2.5% per year.
what will the present value of the $50, 000 investment be at the end of the 10 years?
use this formula to calculate the present value while accounting for inflation:
$present\\ value = \frac{future\\ value}{(1 + annual\\ inflation\\ rate)^{number\\ of\\ years}}$
$64, 004.28$
$45, 000.00$
$39, 059.92$
$50, 000.00$

Explanation:

Step1: Identify given values

Future value = $\$50,000$, annual inflation rate = $0.025$, number of years = $10$

Step2: Substitute into the formula

$$\text{present value} = \frac{50000}{(1 + 0.025)^{10}}$$

Step3: Calculate denominator

$(1 + 0.025)^{10} = 1.025^{10} \approx 1.2800845$

Step4: Compute present value

$\text{present value} = \frac{50000}{1.2800845} \approx 39059.92$

Answer:

$39, 059.92$