Question

When Kevin started working 23 years ago, his salary was $50,382. His current salary is

$168,682. When Kevin started working, the price level was 136, while the current price level is

151. What was Kevin’s average per year percentage raise in real terms over the 23 years?

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

Answer 1

Calculation of Kevin’s average per year percentage raise in real terms over the 23 years:

Increase due to Inflation:

50382* 151/ 136= 55938.838$

Therefore increase in salary in real terms=  $168,682 - 55938.838$ = 112743.16$

i.e average per year percentage raise in real terms over the 23 years,

N=23, PV =50382$, FV=112743.16$, r=?

FV=PV (1+r)ⁿ

112743.16=50382 (1+r)²³

Therefore r=3.56%

Kevin’s average per year percentage raise in real terms over the 23 years is 3.56%