Question

In: Finance

1. In 1975 the price of a new house was $50,000. In 2015 the price of...

1. In 1975 the price of a new house was $50,000.

In 2015 the price of a new house is $300,000.

How much has the price of housing increased over the entire 40 years in percentage terms?

A.5.00%
B.600%
C.4.58%

D.500%

2. The current cost of tuition is $12,000 per year.
The cost of tuition is rising at 5.00% per year.

At this rate of inflation, how much will the cost of tuition be in 20 years?

A.$31,840
B.$12,348
C.$31,203
D. $12,600
E.$32,158
F. $12,726

Solutions

Expert Solution

Answer 1      
Price of new house in 1975=   $50,000  
Price of new house in 2015 =   $300,000  
Time in years = 2015 - 1975=   40  
      
Price increase rate (inflation rate) formula = ( (Value in 2015/Value in 1975)^(1/no. of years)) -1      
=((300000/50000)^(1/40)) - 1      
=0.04581238649   or 4.58%  
      
So, Answer is C 4.58%      
      
Answer 2      
Current Cost of tution =   12000   per year
inflation rate =   5%   per year
Time in years =   20  
Future cost = current cost*(1+inflation rate)^no of years      
=12000*(1+5%)^20      
=31839.57246      
      
So , cost of tution in 20 years is $31840. Answer A.      

Please thumbs up.
      

jeff jeffy answered 2 years ago
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