Sally has inherited a land that was purchased for $30,000 in 1960. The value of the land increased by approximately 5% per year. What is the approximate value of the land in the year 2017?
The answer is $484,000.
I tried using the simple interest formula $I = Prt$ to solve this problem. But I get $$I = 30,000*0.05*57 = $85500$$
What am I doing wrong?
On
My guess is you are meant to use compound interest for this. Simple interest does not make much sense for explaining the increase in value of an investment over such a long period of time.
Compounding investment returns is such a common assumption that whoever posed the problem probably thought it was not necessary to mention it.
Should be compound interest, not simple interest.
$30000 \times (1.05)^{57} \approx 484073$