My boss asked a simple question today but I couldn't find the right answer.
He asked: If I had \$5,000 today in cash, the inflation is 2% year-over-year, then then what's its buying power (value) after 50 years?
If I use the following formula: $5000 * (1-0.02)^{50}$ I get \$1820.
However if I use inflation calculator (at this website http://www.buyupside.com/calculators/inflationjan08.htm) that uses present value/future value formula, I get a different result: $\frac{5000}{(1+0.02)^{50}}$ I get \$1,857.
Which formula is correct and why?
In Zimbabwe, they had a 79,600,000,000% inflation rate. So if you had $ 5000$ dollars, according to your formula you would have $5000(1-796,000,000)=-3979999995000$ dollars. Does this sound right?
However the second formula gives $\frac{5000}{1+796,000,000}=6.2814070272846645385871048510212\times 10^{-6}$.
What one sounds more reasonable?