SOLUTION: Find the cost of a home in 20 years, assuming an annual inflation rate of 2%, if the present value of the house is $260,000. (Round your answer to the nearest cent.)

Question 605680: Find the cost of a home in 20 years, assuming an annual inflation rate of 2%, if the present value of the house is $260,000. (Round your answer to the nearest cent.)

Answer by mathie123(224) (Show Source): You can put this solution on YOUR website!
Okay, we will first take a look at the first few years and then get our formula (and once you know the formula for these types of questions it will be a matter of putting the numbers in the formula after).

If my house costs 260 000 and the inflation rate is 2%/year this means that next year my house will cost 260 000+260 000(0.02)=260 000 (1.02)
Similarily, for the year after, it will cost 2% more than 260 000(1.02)
This means it will cost 260 000(1.02)(1.02).
We can go on and on but you will see that you will get
where t is the number of years that have gone by .
So we can now plug in t=20 into the above formula, use our calculator and get a value (I will leave this to you, hopefully you get a value that is larger than 260 000 seeing as the price is going upwards each year).
Hopefully this helps a bit:)
RELATED QUESTIONS
the annual rate of inflation, in percent, of a home that increases in value from p to q... (answered by Theo)

The function C(t)=C(1+r)t models the rise in the cost of a product that has a cost of C... (answered by Boreal)

The annual inflation rate is 3.8% per year. If a movie ticket costs $9.50 today, find a... (answered by Finavon)

Ten years ago, an item cost $2,500. The rate of inflation for the first 4 years was 4%,... (answered by ikleyn)

The function C(t)=C0(1+r)t models the rise in the cost of a product that has a cost of C0 (answered by ikleyn)

The formula S=C(1+r)^t models inflation, where C=the value today, r= the annual inflation (answered by ikleyn)

The rate of inflation is 3%. The cost of an item in future years can be found by... (answered by stanbon)

the formula S=C(1+r)^t models inflation, where : a. C=the value today b. r=the... (answered by jim_thompson5910)

the percentage cost of radio is 7500 if the rate of inflation for the next three years... (answered by mananth,ikleyn)