Becky is 18 and would like to buy a house when she is 36. What is the discount factor for today's prices if the housing values increase 6% per year?

Respuesta :

jushmk
Number of years before buying the house (n) = 36 -18 = 18 years
Yearly increase of house value (i) = 6% = 0.06

After 18 years,

The house value = (1+i)^n = (1+0.06)^18 = 2.85 the current value.

Additionally,
Increase in rate = (2.85-1)/2.85 = 0.6491 ≈ 0.65 = 65%. This is the discount rate for today's price. In other words, if the house is bought today, it will be paid for 65% less the price after 18 years.

Answer: 35.0%

Step-by-step explanation: