A property is purchased for $175,000 and appreciates at a compound rate of 4% per year. What is the value of the property after 2 years?
Correct Answer
B) $189,280
Using compound appreciation, the value grows on the new balance each year. Year 1: $175,000 × 1.04 = $182,000. Year 2: $182,000 × 1.04 = $189,280. This differs from simple appreciation, which would calculate 4% only on the original value each year ($175,000 × 4% × 2 = $14,000, giving $189,000). Compound appreciation is the standard method used in real estate valuation when appreciation is applied annually.
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