Question

Sharon is 18 and would like to buy a house when she is 34. What is the discount factor for today's prices if the housing values increase 7% per year?
A. 12.0% * I think maybe this one.
B. 14.29%
C. 33.9%
D. 66.1%

Answer 1

If I did the math right it should be A. 12.0%

Answer 2

Solution:

we are given that

Sharon is 18 and would like to buy a house when she is 34.

it mean $n=34-18=16$

we have been asked to find the discount factor for today's prices if the housing values increase 7% per year?

It mean $r=0.07, Annual \ Compounding.$

As we know that

$A=p(1+r)^{nt}$

Let current price be 100, then the future price will be

$A=100(1+0.07)^{16*1}=100(1.07)^{16}\\ \\ A=100*2.952=295.2$

Hence the discount factor is $=\frac{100}{295.2} *100=33.87 Percent$

Hence the correct option is 33.9%.