Using the consumer price index (CPI) to determine the rate of inflation. You can determine the future purchasing power of money. This is important for people living on a fixed income (OASI E, pensions, etc.) as
inflation will decrease the purchasing power of their money over time.
Let P represents the purchasing power in dollars
Let A represents the annual amount in dollars of a pension
Let t represents the number of years of 2% inflation
The purchasing power will decay according to: P = Ae - 0.02
a) How long will it be before a pension of 85,000 per year has the purchasing power of 50,000?
years
b) How much pension A would be needed so that the purchasing power P is 35,000 after 15 years?
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