Before you start counting how wealthy you are going to be in the future or how many things you will be able to afford, consider inflation. When thinking of investments increases of salary, consider the real rate of return. Ask yourself: Does the return on my investments or the percentages of my salary increases exceed the percentage in inflation growth? While compared to other countries, inflation in the United States has been moderate, even a low rate of inflation can significantly affect your financial situation after a number of years. Case/Exercise 17 John has received a $10,000 gift from his aunt Wilhelmina, the cost of a motorcycle. The condition imposed by her is that he can only buy it when he is 25, which is five years from now. So John goes to the bank and deposits the money in an account that will pay him 2% per year for five years. Assume a 5% rate of inflation. (All goods do not increase in value at exactly the average rate of inflation, but assume this is the case in this example.) How much money will John have five years from now? $ How much will the motorcycle cost? $_ ~36~