Question

1) Homer and Marge have purchased a home for $189 000. The real estate agent informs them that homes in their area have generally depreciated by 11% every six years. Based on this, how much should they be able to sell their home for in 15 years? (3 points)

Answer 1

They should be able to sell their home for $149706.9

Explanation:

Let's first understand the situation.

There is an initial value for the house which is $189000. However, this value varies every 6 years because of a 11% depreciation of the total value.

Because the depreciation is not executed during the 6 years in a constant way, but instead after the whole 6 years have passed, then we can calculate how many depreciations will be applied within the next 15 years:

total years/years needed for depreciation=15years/6years=2.5

The above means that only 2 depreciations are going to be applied. Remember that depreciation is only applied if the whole 6 years have passed.

Now, after the first 6 years the depreciation (D) is:

D = 0.11 * $189000 = $20790,

which means that the value of the house will be:

(initial value) - D = $189000 - $20790 = $168210

Now, after the following 6 years, first 12 years, the depreciation (D) is:

D = 0.11 * $168210 = $18503.1,

which means that the value of the house will be:

(initial value) - D = $168210 - $18503.1 = $149706.9

In conclusion, in 15 years from now, they should be able to sell their home for $149706.9