00:01
We're told that in the us, the average inflation rate per year is about 2 .4%.
00:08
And we want to determine what the value of a house would be that starts at $165 ,000 after 10 years at this interest rate.
00:25
And also a pair of pants after five years.
00:32
Originally $50.
00:33
And then we want to discuss how good these estimates actually are.
00:39
So in terms of increase of price, this is more of a continuous thing as opposed to compounding like monthly or weekly or something.
00:49
So we can use the compound interest formula to help us with this.
00:56
And we have p is remember our initial price.
01:03
T is just our time and r is our risk.
01:06
Rate and even though they give us these rates as percentages we need to convert them to decimal so that's why i went ahead and already did that so let's figure out the cost of a house after 10 years so this would be a is equal to so our principal was a hundred sixty five thousand then we multiply this by e so e raised to our rate which is 0 .024 multiply that by 10.
01:41
So when we go ahead and start doing the algebra for this, we should get e to the 0 .24.
01:51
And let's see what we get when we do that.
01:54
So e raised to the 0 .24...