Question & Answer: Assume that in January 2013, the average house price in a particular area was $280, 400. In Januar…..

Assume that in January 2013, the average house price in a particular area was $280,400. In January 2001, the average price was $197,300. What was the annual increase in selling price? (Do not round intermediate calculations. Enter your answer as a percent rounded answer to 2 decimal places, e.g., 32.16.) Annual increase in selling price

Assume that in January 2013, the average house price in a particular area was $280, 400. In January 2001, the average price was $197, 300. What was the annual increase in selling price? (Do not round intermediate calculations. Enter your answer as a percent rounded answer to 2 decimal places, e.g., 32.16.) Annual increase in selling price %

Expert Answer

 

Present value = future value / (1 + interest rate)time period

197300 = 280400 / (1 + interest rate)12

(1 + interest rate)12 = 280400 / 197300

(1 + interest rate)12 = 1.4212

[(1 + interest rate)12 ]1/12 = (1.4212)1/12

1 + interest rate = 1.0297

interest rate = 1.0297 – 1

interest rate = 2.97%

Therefore, Annual increase in selling price is 2.97%

Note:- Time period is from 2001 to 2013 = 12 years

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