You buy Kathy Place in Year 0 for $500. You sell it in year 7 for $1,000. While...

You buy Kathy Place in Year 0 for $500. You sell it in year 7 for $1,000. While owning the property, you made $50 a year. What is your annual return from property appreciation?
1. 7.34%
2. 10.41%
3. 17.52%
4. 18.35%

Expert Solution

Buying Price = $500

Selling Price = $1000

Holding Period = 7 years

The annualized return from the property appreciation won't consider the cash flows in between the trade as they are not the part of capital appreciation.

The trade happened after 7 years of purchase, so the annual return is the compounded value of the selling price over initial investment which comes out to be = (selling price / initial cost)^(1/years of holding) - 1 = (1000/500)^(1/7) - 1 = 10.41%

So the answer is option B.

jeff jeffy answered 2 years ago

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