Question

Ben Collins plans to buy a house for $260,000. If the real estate in his area is expected to increase in value 2 percent each year, what will its approximate value be seven years from now? Use Exhibit 1-A. (Round your FV factor to 3 decimal places and final answer to the nearest whole dollar.)

Answer 1

$298,540

Explanation:

To find the approximate value of Ben Collins' house seven years from now, we can use the compound interest formula:

Future Value = Present Value * (1 + Interest Rate)^Number of Years

Step 1: Identify the given values:

Present Value = $260,000

Interest Rate = 2% = 0.02 (as a decimal)

Number of Years = 7

Step 2: Calculate the future value using the formula:

Future Value = $260,000 * (1 + 0.02)^7

Step 3: Simplify the expression:

Future Value = $260,000 * (1.02)^7

Step 4: Evaluate the expression:

Future Value = $260,000 * 1.149

Step 5: Round the answer to the nearest whole dollar:

Future Value ≈ $298,540

Therefore, the approximate value of Ben Collins' house seven years from now is approximately $298,540.