If the average new home costs $ 275,000 today, how much will it cost in 10 years if the price increases by 5 percent each year?
275000 * 1.05^10 = 447946
To find out how much the new home will cost in 10 years with a 5% annual price increase, we can use the formula for compound interest.
The formula for compound interest is: A = P * (1 + r/n)^(n*t)
Where:
A = the future value of the investment/loan, which is the future cost of the new home in this case.
P = the principal amount, which is the current cost of the new home.
r = the annual interest rate, which is 5% in this case (expressed as a decimal: 0.05).
n = the number of times interest is compounded per year. In this case, it's assumed the interest compounds annually, so n = 1.
t = the time in years, which is 10 years in this case.
Plugging in the values into the formula, we get:
A = 275,000 * (1 + 0.05/1)^(1*10)
Now we can calculate the future cost of the new home in 10 years.