Question

A house worth £80,000 in January 2012 is set to decrease in value by 7% per year.

A more optimistic forecast suggests that the value of the house will increase by 4% per year. According to this forecast, how much will the house be worth in January 2015?

Answer 1

The house would be worth £89989.12 in January 2015.

Explanation:

With respect to the optimistic forecast, the value of the house will increase by 4% per year.

For the first year (January 2012 to January 2013),

4% of £80000 = 0.04 x £80000

= £3200

The cost of the house = £80,000 + £3200

= £83200

For the second year (January 2013 to January 2014), we have;

4% of £83200 = 0.04 x £83200

= £3328

The cost of the house = £83200 + £3328

= £86528

For the third year (January 2014 to January 2015), we have;

4% of £86528 = 0.04 x £86528

= £3461.12

The cost of the house = £86528 + £3461.12

= £89989.12

According to the forecast, the house would be worth £89989.12 in January 2015.