how to calculate the appreciation rate
the appreciation rate is virtually the same as the compound annual growth rate cagr thus you take the ending value divide by the beginning value then take that result to 1 dividend by the number of holding periods e g years finally you subtract one from the result however in order to calculate the appreciation rate that means you need to know the initial value of the investment and the future value you also need to know how long the asset will appreciate for example rachel buys a home for 100 000 in 2016 in 2021 the value has increased to 125 000 the home has appreciated by 25 125 000 100 000 100 000 during these five years the appreciate rate or cagr is 4 6 125 000 100 000 1 5 1 appreciation vs depreciationappreciation is also used in accounting when referring to an upward adjustment of the value of an asset held on a company s accounting books the most common adjustment on the value of an asset in accounting is usually a downward one known as depreciation certain assets are given to appreciation while other assets tend to depreciate over time as a general rule assets that have a finite useful life depreciate rather than appreciate depreciation is typically done as the asset loses economic value through use such as a piece of machinery being used over its useful life while appreciation of assets in accounting is less frequent assets such as trademarks may see an upward value revision due to increased brand recognition real estate stocks and precious metals represent assets purchased with the expectation that they will be worth more in the future than at the time of purchase by contrast automobiles computers and physical equipment gradually decline in value as they progress through their useful lives example of capital appreciationan investor purchases a stock for 10 and the stock pays an annual dividend of 1 equating to a dividend yield of 10 a year later the stock is trading at 15 per share and the investor has received the dividend of 1 the investor has a return of 5 from capital appreciation as the price of the stock went from the purchase price or cost basis of 10 to a current market value of 15 in percentage terms the stock price increase led to a return from capital appreciation of 50 the dividend income return is 1 equating to a return of 10 in line with the original dividend yield the return from capital appreciation combined with the return from the dividend leads to a total return on the stock of 6 or 60 example of currency appreciationchina s ascension onto the world stage as a major economic power has corresponded with price swings in the exchange rate for its currency the yuan beginning in 1981 the currency rose steadily against the dollar until 1996 when it plateaued at a value of 1 equaling 8 28 yuan until 2005 the dollar remained relatively strong during this period it meant cheaper manufacturing costs and labor for american companies who migrated to the country in droves it also meant that american goods were competitive on the world stage as well as the u s due to their cheap labor and manufacturing costs in 2005 however china s yuan reversed course and appreciated 33 in value against the dollar as of may 2024 it s still near that retraced level trading at 7 2 yuan 1appreciation faqsan appreciating asset is any asset which value is increasing for example appreciating assets can be real estate stocks bonds and currency appreciation rate is another word for growth rate the appreciation rate is the rate at which an asset s value grows a good appreciation rate is relative to the asset and risk involved what might be a good appreciation rate for real estate is different than what is a good appreciation rate for a certain currency given the risk involved capital appreciation is the increase in the value or price of an asset this can include stocks real estate or the like the bottom lineappreciation is the rise in the value of an asset such as currency or real estate it s the opposite of depreciation which reduces the value of an asset over its useful life increases in value can be attributed to interest rate changes supply and demand changes or various other reasons 