Answer
Our investment's value 2 years from now will be:
$\frac{\$1,102.5}{1.0609}\approx\$1,039.212$
Work Step by Step
The future value of the investment can be calculated as:
$FV=PV×(1+r)^t$
Here, the present value is the money invested: $PV=\$1,000$
The compound rate per year is $r=5\%$
The number of periods is $2$, as we invest it for $2$ years.
Therefore the future value is:
$FV=PV×(1+r)^t=1,000×1.1025≈\$1,102.5$
We have to consider the inflation too:
The value of the investment can be calculated, as:
$\frac{FV}{(1+i)^t}$
Here, $FV= \$1,102.5$
The inflation rate per year is $3\%$
$t=2$, as we have invested for 2 years.
Therefore our investment's value 2 years from now will be:
$\frac{\$1,102.5}{1.0609}\approx\$1,039.212$
