[Related to Solved Problem 9.5 on page 299] In an article
in the Wall Street Journal, a professor of financial planning
noted the effect of rising prices on purchasing power:
“Today, $2,000 a month seems reasonable [as an income for
a retired person in addition to the person’s Social Security
payments], but 40 years from now that’s going to be three
cups of coffee and a donut.” Suppose that in 2016 three
cups of coffee and a donut can be purchased for $10. The
CPI in 2016 was 240. What would the CPI have to be in 2056
for $2,000 to be able to purchase only three cups of coffee
and a donut? Assume that the prices of coffee and donuts
increase at the same rate as the CPI during these 40 years.
Source: Matthias Rieker, “Rising Use of Immediate Annuities Raises
Some Concerns,” Wall Street Journal, December 4, 2014.