Answer to Question #275721 in Financial Math for Rohosafi

Question

A house which is valued at ksh2600,000 appreciated at rate of 12% per year.

I. What will be its value after two and half years?

Ii. After how long will its value be ksh 4200,000

Answer 1

I. Value of house after two and half years

$FV=PV(1+r)^{n}$

$FV=2600000\times(1+0.12)^{2.5}$

$FV=3,451,583.66$

Ii. Time period to reach 4200,000

$FV=PV(1+r)^{n}$

$4200000=2600000\times(1+0.12)^{n}$

$(1+0.12)^{n}=\frac{4200,000}{2600,000}$

$(1.12)^{n}=1.62$

$n\times log(1.12)=log(1.62)$

$n=\frac{log(1.62)}{log(1.12)}$

$n=\frac{0.2095}{0.0492}=4.26$

This means the value of house will be ksh 4200,000 after 4.26 years.