Appreciation and depreciation are terms used to describe the increase or decrease in value of an asset over time. Appreciation is the increase in value over time, while depreciation refers to a decrease in value. These two concepts are important for investors and business owners alike to understand because they affect how effectively an investment can be used. A higher appreciation rate means that more profits are gained from an investment over time; likewise, a higher depreciation rate indicates less profit from investments held for longer periods of time.

Appreciation definition

Appreciation is an increase in the value of an asset over time. This can be measured by comparing the current market price of an asset with its original cost (the difference between those two numbers is called depreciation).

How to calculate appreciation?

You can calculate appreciation using the formula:

FV = SV \times (\frac {AR}{1})^{P}

FV is the final value of the asset, SV is the starting value, AR is the appreciation rate per month and P is the period (in months).

Appreciation examples

For example, let’s say you bought a house for $250,000 and then sold it for $300,000 ten years later. That would mean that your house appreciated by $50,000 during those 10 years.

Depreciation

The concept of appreciation is a simple one to understand: it’s the increase in the value of an asset. For example, if you buy a stock for $10 and sell that same stock for $20 later on, your total profit is $10, or the amount by which its value has increased since purchase.

Appreciation is an important concept for investors because it tells them how their investments are doing over time. For example, if you buy a share of stock at $1 per share and then sell it back after a decade at $2 per share (meaning that it doubled in value during those 10 years), then you’ve experienced appreciation on your investment.

Depreciation works similarly: It’s the decrease in the value of an asset over time. For example, if you purchase a car for $50k but its resale value drops to 45k before being sold again 6 months later (a drop of 5%), then depreciation has occurred on this car’s assets as well as any other piece of property with which depreciation might take place (such as machinery).

FAQ

What is economic appreciation?

Appreciation, or capital appreciation, is an increase in the price or value of an asset.

What happens when a currency appreciates?

When a currency appreciates relative to another currency it means the goods of that country are more expensive, so exports will fall.

Why is appreciation important in economics?

In finance, appreciation is an essential concept. The possibility of an increase in the value of the asset over time encourages investors to purchase financial assets to earn a profit.