The Estradas are planning to buy a house 5 years from now. Housing experts in their area have estimated that the cost of a home will increase at a rate of 3%/year during that 5-year period. If this economic prediction holds true, how much can the Estradas expect to pay for a house that currently costs $500,000? (Round your answer the the nearest dollar.)
what is
500000(1.03)^5 ?
Are they paying in cash?
The cost in dollars in five years will be 500,000(1.03)^5
But the real cost is dependent on the inflation rate (ie,how much less is a dollar worth in 5years, how much income will increase), and then, what will be the interest rates available in 5 years..Few folks pay cash for houses.
Paying in cash. Thank you!
Doing homework with James, thanks!
To calculate the future cost of a house, accounting for an annual increase of 3%, you can use the formula for compound interest. Here's how you can calculate the future cost for the Estradas:
Step 1: Convert the percentage increase to a decimal. In this case, the annual increase is 3%, so it will be 0.03.
Step 2: Use the compound interest formula: A = P(1 + r)^n,
where:
A = future value
P = present value (current cost of the house)
r = annual interest rate as a decimal
n = number of years
In this case, P = $500,000, r = 0.03, and n = 5.
Step 3: Plug the values into the formula and calculate:
A = $500,000 * (1 + 0.03)^5
Calculating the above equation will give us the future cost that the Estradas can expect to pay for a house after 5 years. Rounding the result to the nearest dollar will provide the final answer.