Question

When Kevin started working 24 years ago, his salary was $66,308. His current salary is

$158,067. When Kevin started working, the price level was 123, while the current price level is

153. How much has Kevin’s salary increased in real terms over the 24 years?

State your answer to two decimal places (e.g., 3;28).

Answer 1

Real salary today = Salary Today * Price Level before 24 years / Price level Today

= $ 158067 * 123 / 153

= $ 127073.47

Future Value:
FV = PV (1+r)^n
Where r is Int rate per period
n - No. of periods

Particulars	Amount
Present Value	$     66,308.00
Future Value	$ 1,27,073.47
Periods	24

Future Value = Cash Flow * ( 1 + r )^n
$ 127073.47 = $ 66308 ( 1 + r ) ^ 24
( 1 + r ) ^ 24 = $127073.47 / $66308
( 1 + r ) ^ 24 = 1.9164
( 1 + r ) = 1.9164 ^ ( 1 / 24 )
( 1 + r ) = 1.0275
r = 1.0275 - 1
r = 0.0275 i.e 2.75 %

Inc in salary in Realterms is 2.75% per anum.