A recent article suggested that if you earn $25,000 a year today and the inflation rate continues at 3 percent per year, you'll need to make $38,598 in 10 years to have the same buying power. You would need to make $44,771 if the inflation rate jumped to 6 percent. Confirm that these statements are accurate by finding the geometric mean rate of increase.


I'm not sure if I calcuated this correctly: I calcualted the square root of 44,771/25,000 and I came up with 158.113883. If this is incorrect, could someone tell me what I am doing wrong?

Here's how the formula works for the 10 year problem:

Present Value Amount * (1 + interest rate)^number of year = Final Value Amount

25,000 * (1 + interest rate)^10 = 38,598

I think I got it... is this correct?

3% --Square root 10th ( 33598/25000) = 1.34392 = 1.030 – 1 = .030 = 3%
6%-- Square root 10th ( 44,771/25,000) = 1.059 -1 = .059 = 6%

Looks good!