In a suburb of Houston, housing costs have been increasing at 5.2% per a year compounded annually for the past 8 years. A house with a current value of $26,000 would have been worth how much 8 years ago?
To find out how much the house would have been worth 8 years ago, we can use the formula for compound interest:
A = P(1 + r)^n
Where:
A = the final amount
P = the initial amount (current value of the house)
r = the interest rate (increase in housing costs per year)
n = the number of years
In this case, the initial amount (P) is $26,000, the interest rate (r) is 5.2% per year, and the number of years (n) is 8.
Substituting the values into the formula:
A = 26,000(1 + 0.052)^8
Now we can calculate the value of A, which will represent the worth of the house 8 years ago.