Question

e. Assume that the average price of a new home is $132,500. If new homes are increasing at a rate of 8% per year, how much will a new home cost in seven years? (Round your answer to 2 decimal places.)

Answer 1

A new home will cost $227081.72 in seven years.

Step-by-step explanation:

To calculate the value or price of the new home in seven years, we need to calculate the future value of $132500 increasing at a rate of 8% per year for 7 years. The formula to calculate the future value will be,

Future value = Present value * (1+r)^t

Where,

• r is the rate which will be used for compounding
• t is the time in number of years

Future value = 132500 * (1+0.08)^7

Future value = $227081.7156 rounded off to $227081.72