Question

When Kevin started working 24 years ago, his salary was $56,329. His current salary is $170,495....

When Kevin started working 24 years ago, his salary was $56,329. His current salary is $170,495. When Kevin started working, the price level was 138, while the current price level is 157. What was Kevin’s average per year percentage raise in real terms over the 24 years? State your answer to two decimal places (e.g., 3;28).

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Answer #1

P1 = Current Price level = 157

P0 = Price level at 24 years ago = 138

Current Salary = $170,495

Current Salary after adjusting inflaiton = Current Salary * P0 / P1

= $170,495 * 138 / 157

= $149,861.847134

Salary 24 years ago = $56,329

n = 24 years

Let r = annual real raise in the salary

Current Salary after adjusting inflaiton = Salary 24 years ago * (1=r)^n

$149,861.847134 = $56,239 * (1+r)^24

(1+r)^24 = 2.6647317188

1+r = 1.04168296522

r = 0.04168296522

r = 4.17%

Therefore, annual average raise for 24 years is 4.17%

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