Question

James purchases a property for $150,000 in 2015. In the first year of ownership the capital appreciation of the property (how much its value increases by per annum) is 4%. In year 2, the housing market suffers a crash and the house experiences a capital depreciation of 6%. Calculate the value of the property, to the nearest $1,000, at the end of year 2. Round your answer to the nearest $1,000.

Answer 1

$147,000

Explanation:

After 1st year:

we need to increase 150,000 by 4%. That means the value would be 150,000 multiplied by 1.04. So:

150,000 * 1.04 = 156,000

After 2nd year:

The new appreciated value of 156,000 will now suffer a loss of 6%. So we need to find the new value by multiplying 156,000 by 0.94 (6% loss). So:

156,000 * 0.94 = 146,640

To the nearest 1000, this would be $147,000