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housing prices increased 37.5% over 5 years. if $80,000 was the average house price 5 years ago, what is todays average price

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2 Answers

Today's cost can be found by using the original cost and multiplying it by the increase. Because we want to know the today's price we need both the original cost expressed as 1 plus the increase converted to a decimal (37.5% is .375). 
 
 
The final equation would look like this...
 
$80,000*1.375=$110,000
 
 
You can use this same logic to add increases in many scenarios such as wages increases. Keep in mind that if the question changes to find out only the increase and not the total price you would omit the original cost expressed as 1. It would then change the equation to,
 
$80,000*0.375=$30,000
 
Do you see the difference? I hope this helps you get a better understanding.
Hi Lorraine;
5 years ago...$80,000
current....x
rate of increase...37.5%/5 years=0.375/5 years
$80,000+[($80,000)(0.375)]=x
$80,000+$30,000=$110,000