To find the final altitude of the hot air balloon, we can break the problem down into two steps:
- Calculate the new altitude after the balloon reduces its altitude by 3%.
- Increase this new altitude by 500 feet.
Step 1: Calculate the altitude after a 3% reduction.
\[ \text{Reduction} = \text{Initial Altitude} \times \text{Percentage Reduction} \] \[ \text{Reduction} = 4000 \text{ feet} \times 0.03 = 120 \text{ feet} \]
Now, subtract the reduction from the initial altitude:
\[ \text{New Altitude} = \text{Initial Altitude} - \text{Reduction} \] \[ \text{New Altitude} = 4000 \text{ feet} - 120 \text{ feet} = 3880 \text{ feet} \]
Step 2: Increase the altitude by 500 feet.
\[ \text{Final Altitude} = \text{New Altitude} + 500 \text{ feet} \] \[ \text{Final Altitude} = 3880 \text{ feet} + 500 \text{ feet} = 4380 \text{ feet} \]
Therefore, the final altitude of the hot air balloon is:
\[ \boxed{4380} \text{ feet} \]