Using the Bank of Canada inflation calculator, www.bankofcanada.ca/enlinflation_calc.htm, answer the following questions:
a. What annual salary in 2010 was equivalent to $5,000 a year in 1940?
b. Find the average annual inflation rate from 1914 to the current year.
Now access the investment calculator by either clicking the button at the bottom of the page or going to www.bankofcanada.ca/en/rates/investment.htm and answer these questions:
c. With the calculator, determine the future value of a S-year investment. Use the average inflation from part (b) and look up the current S-year GIC rate at www.bankofcanada.ca/enlinterestlook.htm. Verify the calculations made by the calculator. Be sure that you can replicate them all.
d. Explain the second part of the calculation. Why is it important that the future value entered be the amount of money you want to have in today’s dollars (after the effects of inflation have been calculated.)?