A Pennsylvania investor buys a property for $400,000 and sells it 3 years later for $472,000. What is the annual appreciation rate?

Explanation

Total appreciation = ($472,000 minus $400,000) divided by $400,000 = 18% over 3 years. Annual appreciation rate = 18% divided by 3 years = 6% per year (simple average method). Note that the compound annual growth rate (CAGR) calculation gives approximately 5.67%: ($472,000 divided by $400,000) to the power of (1/3) minus 1 = 1.18 to the power of 0.333 minus 1 ≈ 5.67%. For exam purposes, dividing total appreciation by holding period gives the simple annual rate; more advanced calculations use compounding.