I am doing a course on Personal Finance & Investment. In the chapter of about impact of not investing, one of the questions in a quiz is to calculate the effect of inflation on a sum of money not invested over a period of 2 years.
I calculated it using the formula:
impact_of_inflation = init_amt - init_amt * power(1 - inflation_rate/100, number_of_years)
So, for an amount of 25000 with an inflation rate of 2.5% over a period of 2 years, it would be something like:
impact_of_inflation = $25000 - $25000 * power(1 - 2.5/100, 2) = $1234.38
However, the options given are $1265.60, $1556.20, $1000.50 and $1334.7
While the quiz is over and I passed based on the other questions, I am not sure how this is calculated. Can someone please help me understand how this works?