Question

In 2019, Buck Meadows bought a house for $325,000. In 2020, his neighbor sold his house for $330,000. Assuming Buck’s house’s value has the same value as his neighbor’s and both increase in value at a constant relative growth rate, predict the value of Buck’s house in 2030.

Answer 1

Price of Buck's house in 2019 = $325000

In 2020, his neighbor sold his house for $330,000

Since Buck’s house’s value has the same value as his neighbor’s and both increase in value at a constant relative growth rate,

Growth rate for Buck's house value is

g = Value of neighbor's house in 2020/Value of Buck's house in 2019 - 1 = (330000/325000) - 1 = 1.5385%

So, Buck's house value in 2030 = Value in 2019*(1+g)^11 = 325000*1.015385^11 = $384432.18

So, Buck's house value in 2030 = $384432.18