The Kwans 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 5%/year during that period. If this economic prediction holds true, how much can the Kwans expect to pay for a house that currently costs $170,000?

Question

The Kwans 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 5%/year during that period. If this economic prediction holds true, how much can the Kwans expect to pay for a house that currently costs $170,000? ​

Quizplus · Accepted Answer

The future cost of the house can be calculated using the formula for compound interest: Future Value = Present Value * (1 + rate)^n. Here, Present Value = $170,000, rate = 5% or 0.05, and n = 5 years. So, Future Value = $170,000 * (1 + 0.05)^5 = $170,000 * 1.27628 = $216,968.

The Kwans Are Planning to Buy a House 5 Years