If inflation is 1.5% per year for the next four years, what must an investment of €25,000 grow to in order to keep pace with inflation?

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Multiple Choice

If inflation is 1.5% per year for the next four years, what must an investment of €25,000 grow to in order to keep pace with inflation?

Explanation:
To keep pace with inflation, your investment must grow by the same rate each year, so the future value is the present value multiplied by (1 + inflation rate) raised to the power of the number of years. With 1.5% annual inflation over four years, the factor is (1.015)^4. Calculating: €25,000 × (1.015)^4 ≈ €26,534. So you’d need about €26,534 to match four years of 1.5% inflation. Among the options, €26,525 is the closest approximation to that target, making it the best choice.

To keep pace with inflation, your investment must grow by the same rate each year, so the future value is the present value multiplied by (1 + inflation rate) raised to the power of the number of years. With 1.5% annual inflation over four years, the factor is (1.015)^4.

Calculating: €25,000 × (1.015)^4 ≈ €26,534. So you’d need about €26,534 to match four years of 1.5% inflation. Among the options, €26,525 is the closest approximation to that target, making it the best choice.

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