As you have seen in this chapter, a dollar today does not have the same value as

Question

As you have seen in this chapter, a dollar today does not have the same value as a dollar in the future or a dollar received in the past. At the time of his death in 1937, John D. Rockefeller was estimated to be worth $1.4 billion.

Using the calculator availble at www.usinflationcalculator.com

1)  How much would Rockefeller's fortune be worth in today's dollars?

2) Now let's consider a hypothetical situation where you are worth $1 million at the end of World War II. Using the same CPI tool, calculate how much you would need today to maintain the same purchasing power as in 1945.

3) Assume that the rate of inflation for the next 30 years is the same as the last 30 years. How much will you need to have the same purchasing power as you have today?

Explanation / Answer

1) Using the calculator mentioned, Rockefeller's fortune would have been #23.04 billion today, if it was 1.4 billion in the year 1937.

2) It would need $13.17 million today to maintain the same purchaing power equivalent to $1 million in year 2945.

3) We are in 2016 today. So we assume that last 30 years period is year 1986 to 2016. Inflation rate during this period is calculated from calculator using $1million in 1986 gives $2.16 million in 2016, thereby inflation rate of 116.3%. By applying the same inflation rate of 116.3%, we get:-

Money required 30 years from now (i.e. Year 2046)=2.16+2.16*116.3%=$4.67 million

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