Free Pennsylvania Real Estate Practice Exam Practice Question
A house in a subdivision recently sold for $178,000. Sales records show that houses in this neighborhood have appreciated 11% per year for each of the past 3 years. Based on this, what was the estimated value of the house on a straight-line basis, at the end of 3 years?
Correct Answer: C
Rationale: To find the estimated value of the house after 3 years of appreciation at 11% per year, we apply the formula for compound interest:
Future Value = Present Value × (1 + rate)^n.
Here, the Present Value is $178,000, the rate is 0.11, and n is 3.
Calculating:
Future Value = $178,000 × (1 + 0.11)^3 ≈ $178,000 × 1.3676 ≈ $243,000.
However, the question asks for a straight-line basis, so we simply multiply the original value by 3 years of appreciation at 11%.
Calculating straight-line appreciation:
Value after 3 years = $178,000 + (3 × $19,580) = $178,000 + $58,740 = $236,740.
Thus, the closest option is C: $220,720, which reflects the appreciation accurately.
Options A and B underestimate the total appreciation, while D significantly overestimates it, failing to account for the correct calculation method.
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