The Estradas Are Planning to Buy a House 4 Year(s)

question 148

Short Answer

The Estradas are planning to buy a house 4 year(s) from now. Housing experts in their area have estimated that the cost of a home will increase at a rate of 8% / year during that 4-year period. If this economic prediction holds true, how much can they expect to pay for a house that currently costs $40,000? Round your answer to the nearest cent.
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$__________

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Definitions:

Certainty Equivalent NPV

A method that adjusts the net present value (NPV) of an investment by incorporating the decision maker's risk aversion, providing a risk-adjusted NPV under certainty.

Traditional NPV

Net Present Value; a method of evaluating the profitability of an investment by calculating the present value of expected future cash flows minus the initial investment cost.

Beta

A measurement of the volatility of a stock or a portfolio in comparison to the market as a whole.

Discount Rate

The rate employed in discounted cash flow assessments to establish the current valuation of anticipated future cash flows.