Question

Ben Collins plans to buy a house for $281,000. If that real estate is expected to increase in value by 8 percent each year, what will its approximate value be seven years from now? Use Exhibit 1-A. (Round time value factor to 3 decimal places and final answer to the nearest whole number.)

Answer 1

$ 481,634.00

Step-by-step explanation:

The approximate value of the property in seven years's time can be determined by using the future value formula given below:

FV=PV(1+r)^n

PV is the current value of the house which is the cost of $281,000

r is the rate of appreciation in value yearly which is 8%

n is the number of years in which the property is expected to appreciate

FV=$281,000*(1+8%)^7=$ 481,584.62

Alternatively:

FV=PV*annuity factor of 8% in year 7

annuity factor is 1.714

FV=$281,000*1.714=$481,634.00