A house resold with no changes: $300,000 in March, $318,000 fourteen months later. What annual appreciation does this resale indicate?
Correct Answer
C) About 5.1% per year, annualized
Why this is correct: The price increased from $300,000 to $318,000, a gain of $18,000 or 6% over 14 months. To annualize: 6% × (12 months / 14 months) = approximately 5.14% per year. Why the other choices are wrong: 'About 6% per year' ignores the 14-month period, overstating the annual rate. 'Exactly 18% per year' is a miscalculation of the total gain. 'About 3% per year' is roughly half the correct rate and lacks basis. Exam tip: For time adjustments, always annualize the percentage change based on the exact holding period.
Why This Is the Correct Answer
Why this is correct: The price increased from $300,000 to $318,000, a gain of $18,000 or 6% over 14 months. To annualize: 6% × (12 months / 14 months) = approximately 5.14% per year. Why the other choices are wrong: 'About 6% per year' ignores the 14-month period, overstating the annual rate. 'Exactly 18% per year' is a miscalculation of the total gain. 'About 3% per year' is roughly half the correct rate and lacks basis. Exam tip: For time adjustments, always annualize the percentage change based on the exact holding period.
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