Question

A property bought 9 years ago for $500,245 is priced today at $1,000,000. What has been the annual growth rate of the property's price?

a. 12%
B. 10%
c. 8%
d. 6%
e. none of the above

Answer 1

The annual growth rate of the property's price over 9 years is approximately 8%, calculated using the compound annual growth rate (CAGR) formula.

Step-by-step explanation:

To calculate the annual growth rate of the property's price, we use the formula for compound annual growth rate (CAGR), which is:

CAGR = (Ending Value/Beginning Value)^(1/n) - 1

where:

• Ending Value = $1,000,000 (the value of the property today)
• Beginning Value = $500,245 (the value of the property 9 years ago)
• n = 9 (the number of years the property has been held)

Plugging these values into the formula, we get:

CAGR = ($1,000,000 / $500,245)^(1/9) - 1

Calculating this gives us a CAGR of approximately 0.0809 or 8.09%, which is closest to 8% (option c).

Therefore, the annual growth rate of the property's price over the 9 years has been approximately 8%.