A property is purchased for $175,000 and appreciates at 4% per year, compounded annually. What is the value of the property after 2 years?
Correct Answer
B) $189,280
Compound appreciation applies the growth rate to the new value each year, not just the original. Year 1: $175,000 × 1.04 = $182,000. Year 2: $182,000 × 1.04 = $189,280. Note the difference from simple appreciation: simple appreciation would yield $175,000 + ($175,000 × 4% × 2) = $189,000 (option C). The compounded result of $189,280 is slightly higher because Year 2 growth is calculated on the already-appreciated Year 1 value. Real estate exam questions typically use compound appreciation unless stated otherwise.
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Related Topics & Key Terms
Related Topics:
Key Terms:
Related Concepts
IRV stands for Income, Rate, and Value. It represents the relationship between Net Operating Income (I), Capitalization Rate (R), and Property Value (V).
Loan qualification math involves calculating the debt-to-income ratios that lenders use to determine whether a borrower qualifies for a mortgage. The two primary ratios are the front-end (housing expense) ratio and the back-end (total debt) ratio.
Monthly interest is the portion of the total annual interest that is paid or accrued each month.
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