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Future Value of a Dollar - Social Security Benefits
<Author name>
<Institutional affiliation>
<Course number and name>
<Instructor name>
<Assignment due date>
, 2
Future Value of a Dollar - Social Security Benefits
The difference between the projected benefits and real buying power
The real buying power in 15 years will be affected by the future value of the dollar. This
value will be affected by the estimated inflation per year. The most suitable formula to use when
calculating this future valuation of the dollar is the future value formula (Financial Formulas,
2020). While this formula is applied in calculating the value of cash flow in a future period after
it is received, it is also applied in determining currency valuation given the inputs for the formula
can be swiftly replaced to serve the intended purpose (Financial Formulas, 2020). This means the
inputs ‘cash flow (C0)’, ‘rate of return (r)’, and ‘number of periods (n)’ can be represented by
figures for annual benefits, rate of inflation and the period before benefit payment starts
respectively. The future value formula is C0 divided by (1 + r) n (Financial Formulas, 2020). The
formula ultimately suggests that the time value of money determines the difference in amount
from the present time and future time.
Using the formula, the future valuation of the dollar can be determined and ultimately
realize the difference between the projected annual benefit, and the real buying power of the
projected benefit based on the impact and projection of inflation (Financial Formulas, 2020).
This calculation will help to realize the real purchasing power after 15 years, which is the
difference between the individual’s age when they start receiving the benefits (65) and their
current age (50). The annual estimated benefit, $22,102, is divided by (1 + 3/100)15. This is
equal to $22,102 divided by 1.56 which is equal to 14,167.95. This means that the purchasing
power of the projected benefits of $22,102 will have reduced to $14,167.95 after a 3% inflation
over 15 years. This buying power will have reduced by an annual $529 and a combined $7,935
Future Value of a Dollar - Social Security Benefits
<Author name>
<Institutional affiliation>
<Course number and name>
<Instructor name>
<Assignment due date>
, 2
Future Value of a Dollar - Social Security Benefits
The difference between the projected benefits and real buying power
The real buying power in 15 years will be affected by the future value of the dollar. This
value will be affected by the estimated inflation per year. The most suitable formula to use when
calculating this future valuation of the dollar is the future value formula (Financial Formulas,
2020). While this formula is applied in calculating the value of cash flow in a future period after
it is received, it is also applied in determining currency valuation given the inputs for the formula
can be swiftly replaced to serve the intended purpose (Financial Formulas, 2020). This means the
inputs ‘cash flow (C0)’, ‘rate of return (r)’, and ‘number of periods (n)’ can be represented by
figures for annual benefits, rate of inflation and the period before benefit payment starts
respectively. The future value formula is C0 divided by (1 + r) n (Financial Formulas, 2020). The
formula ultimately suggests that the time value of money determines the difference in amount
from the present time and future time.
Using the formula, the future valuation of the dollar can be determined and ultimately
realize the difference between the projected annual benefit, and the real buying power of the
projected benefit based on the impact and projection of inflation (Financial Formulas, 2020).
This calculation will help to realize the real purchasing power after 15 years, which is the
difference between the individual’s age when they start receiving the benefits (65) and their
current age (50). The annual estimated benefit, $22,102, is divided by (1 + 3/100)15. This is
equal to $22,102 divided by 1.56 which is equal to 14,167.95. This means that the purchasing
power of the projected benefits of $22,102 will have reduced to $14,167.95 after a 3% inflation
over 15 years. This buying power will have reduced by an annual $529 and a combined $7,935
