COmpound interest

Question

The Estradas are planning to buy a house 3 years from now. Housing experts in their area have estimated that the cost of a home will increase at a rate of 4%/year during that 3-year period. If this economic prediction holds true, how much can the Estradas expect to pay for a house that currently costs $200,000? (Round your answer the the nearest dollar.)

Answer 1

If a house increases at a simple interest rate of 4% a year for 3 years then we can expect a house to cost (1.04)*(1.04)*(1.04)*(Price Today) so Future Cost = ((1.04)^3)*(200,000) simplify and solve so Future Cost = 1.124864*200,000 = $224972.8. Hope this answer has been of some help. May God bless.