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 is equal to the fraction with numerator future value and denominator open paren 1 plus annual inflation rate close paren to the number of years th power
Answer
A
12 dollars comma 292 point 5 5
B
7 dollars comma 500 point 0 0
C
10 dollars comma 000 point 0 0
D
8 dollars comma 135 point 0 1
Explanation
Use the inflation-adjusted present value formula: divide the future value by (1 + annual inflation rate) raised to the number of years. Thus, $10,000 ÷ (1.035)^6 ≈ $8,135.01. The investment’s present value after accounting for six years of inflation is $8,135.01, choice B.
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