Question: Could you please explain the concept behind this answer. I'm very confused. Thank you. QUestion: With i = 3%. If you plan to consume $1.03

Could you please explain the concept behind this answer. I'm very confused. Thank you.

QUestion: With i = 3%. If you plan to consume $1.03 in year 1, how much will you need to have to keep the same real consumption in year 2? In year 10? In year 20?

Answer

Yr 2 = 1.03*(1+3%)^1 = $1.0609

Yr 10 = 1.03*(1+3%)^9 = $1.3439

Yr 20 = 1.03*(1+3%)^19 = $1.8061

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