Kathleen just received a bonus from EG. She is excited because her dad started his career with EG. If her bonus of $300,000 is equivalent to the bonus paid to her dad 10 years ago, how much was her dad's bonus? Assume that the average annual inflation rate was 3.8%. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

Question

Veronica Olsen

Business

19 January, 11:13

Kathleen just received a bonus from EG. She is excited because her dad started his career with EG. If her bonus of $300,000 is equivalent to the bonus paid to her dad 10 years ago, how much was her dad's bonus? Assume that the average annual inflation rate was 3.8%. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

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Giselle Melendez · Answer 1

=$206,608.28

Explanation:

Inflation erodes the value of money, so to determine the real value of any given amount (nominal) we need to adjust it for infalton.

In the same vein, to calculate her dad's bonus 10 years ago, we will have to determine the real value of $300, 000 using the annual inflation rate.

This is determined as follows:

Real bonus = 300,000/1.038

= $206,608.28

The value of her dad's bonus 10 years ago

=$206,608.28