To find out how much $100 will buy you in 25 years, we need to calculate the value of $100 after 25 years of 5% inflation. We can use the following formula to do this:
Value after inflation = Value before inflation / (1 + inflation rate)^number of years
Plugging in the values we know, we get:
Value after inflation = $100 / (1 + 0.05)^25
Value after inflation = $29.47
So $100 in today's money will only be able to buy you $29.47 worth of goods in 25 years if inflation decreases the value of money by 5% each year.
Inflation cause things to cost more and for our money to buy less hence your grandparents saying “In my day, you could by a cup of coffee for a nickel.” Suppose inflation decreases the value of money by 5% each year. In other words if you have $1this year, next year it will only buy you $0.95 worth of stuff. How much will $100 buy you in 25 years?
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