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A home owner purchased a home on January 1st, 2018 for $220,000
A home owner purchased a home on January 1st, 2018 for $220,000. On January 1st, 2019, it was valued at $260,000 and on January 1st, 2020 it was valued at $310,000.
Showing your work, the average growth rate (in % to 2 decimal places (e.g. 8.34%) in the value of this home over the 2-year period was
Expert Solution
Computation of the average growth rate:-
Growth rate for Jan 1, 2019 = (Purchase price for Jan 1, 2019 - Purchase price for Jan 1, 2018) / Purchase price for Jan 1, 2018
= ($260,000 - $220,000) / $220,000
= $40,000 / $220,000
= 18.18%
Growth rate for Jan 1, 2020 = (Purchase price for Jan 1, 2020 - Purchase price for Jan 1, 2019) / Purchase price for Jan 1, 2019
= ($310,000 - $260,000) / $260,000
= $50,000 / $260,000
= 19.23%
Average growth rate = (Growth rate for Jan 1, 2019 + Growth rate for Jan 1, 2020) / 2
= (18.18% + 19.23%) / 2
= 37.41% / 2
= 18.71%
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