Actualizing Antiques An antique chair was purchased in the y

Actualizing Antiques An antique chair was purchased in the year 1995 for $450. An appraiser estimated that the value would increase 10%. What would the average rate of chair of the chair be to the nearest dollar over the first five year period of owning the chair?

Solution

Answer: $725 (As explained below)

If the value of the chair cumulates by 10% every year we can obtain the amount it would be worth by the fifth year as below:

A = P + (1 + R/100)ⁿ = 450 + (1 + 10/100)⁵ = 450 + (1.1)⁵ = 450 + (1.1 x 1.1 x 1.1 x 1.1 x 1.1) = 450 x 1.6105 = 724.725 = $725.