Louisa expects her investment to grow to $40,000 in 12 years. The current CPI is 105 , and the expected CPI in 12 years is 140 What is the present value of the $40,000 in today's dollars? Use this formula to calculate the present value using the CPI: present value is equal to the fraction with numerator future value and denominator future CPI over current CPI
Use the CPI ratio to convert the future amount into today's dollars: $40,000 ÷ (140 ÷ 105). The CPI ratio is 4/3, so $40,000 ÷ 4/3 = $30,000. Therefore, the present value is $30,000, choice B.
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