In 2015, a retired person in the United States who received maximum social security benefits got $2699 per month, which represented a 1.7% cost of living adjustment (COLA) over 2014. (a) Determine the monthly benefit in 2018 if the COLA adjustments are 1.5%, 2.1%, and 2.7%, respectively, for the next 3 years. (b) Assuming the average annual inflation is 2.0% per year, determine if the monthly benefits in 2018 have more or less purchasing power in current-value terms assuming the 3 years of COLA adjustments above.
In 2015, a retired person in the United States who received maximum social security benefits got $2699 per month, which represented a 1.7% cost of living adjustment (COLA) over 2014. (a) Determine the monthly benefit in 2018 if the COLA adjustments are 1.5%, 2.1%, and 2.7%, respectively, for the next 3 years. (b) Assuming the average annual inflation is 2.0% per year, determine if the monthly benefits in 2018 have more or less purchasing power in current-value terms assuming the 3 years of COLA adjustments above.
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 36P
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Question
In 2015, a retired person in the United States who
received maximum social security benefits got
$2699 per month, which represented a 1.7% cost
of living adjustment (COLA) over 2014. (a) Determine
the monthly benefit in 2018 if the COLA
adjustments are 1.5%, 2.1%, and 2.7%, respectively,
for the next 3 years. (b) Assuming the average
annual inflation is 2.0% per year, determine if
the monthly benefits in 2018 have more or less
the 3 years of COLA adjustments above.
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