Business Maths Question (SAC tomorrow!!)

[dshban]

A house which was originally purchased for $165000, was sold after 10 yrs for $245000.
Capital gains tax had to be paid on the profit, after allowing for inflation.
Assuming inflation averaged 3.8% p.a. over the 10 yrs, find the amount on which tax must be paid.
It says the answer is $5416.18 but I don't know how to get it.

Any ideas?

[krzysiek]

Hello,

When they purchased the house, it was worth $165,000. Due to inflation, after ten years, it's value has changed alongside with inflation.

Inflation is given to you at 3.8% p.a.

You can use the forumla A = PxR^n to work out the final amount/value of the property, due to inflation, after 10 years.
A = 165,000 x (1 + (3.8/100))^10 = $239,583.82

They sold it for $245,000. The profit earned on the property is $245,000-$239,583.82 = $5,416.18

However, I always thought that C.G.T is only paid on 50% of the profit earnt, so that tax would only be paid on an amount of $2,708.09. Nonetheless, this is how they have done it I think.