A house was bought for $250,000. If the inflation rate is 4% per year, what will

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Question: A house was bought for $250,000. If the inflation rate is 4% per year, what will be the value of the house after 3 years?

Options:

Correct Answer: $290,000

Solution:

Value after 3 years = 250000 * (1 + 0.04)^3 = 250000 * 1.124864 = $281,216 (approx $290,000)

A house was bought for $250,000. If the inflation rate is 4% per year, what will be the value of the house after 3 years?

A house was bought for $250,000. If the inflation rate is 4% per year, what will be the value of the house after 3 years?

Step 1: Identify the initial value of the house, which is $250,000.
Step 2: Identify the inflation rate, which is 4% per year. Convert this percentage to a decimal by dividing by 100, so 4% becomes 0.04.
Step 3: Determine the number of years for which the inflation will be applied, which is 3 years.
Step 4: Use the formula for future value considering inflation: Future Value = Initial Value * (1 + Inflation Rate) ^ Number of Years.
Step 5: Plug in the values: Future Value = 250000 * (1 + 0.04) ^ 3.
Step 6: Calculate (1 + 0.04), which equals 1.04.
Step 7: Raise 1.04 to the power of 3: 1.04 ^ 3 = 1.124864.
Step 8: Multiply the initial value by this result: 250000 * 1.124864.
Step 9: Calculate the final value: 250000 * 1.124864 = 281216.
Step 10: Round the final value to the nearest thousand, which is approximately $281,000.

Inflation Calculation – Understanding how to calculate the future value of an asset considering a constant inflation rate.
Exponential Growth – Applying the formula for compound growth to determine the increased value over multiple years.