Appreciation

Published Dec 23, 2022

Definition of Appreciation

Appreciation is defined as an increase in the value of an asset over time. That means it is the opposite of depreciation, which is a decrease in the value of an asset over time. Appreciation can occur for a variety of reasons, including inflation, increased demand, or a change in market conditions.

Example

To illustrate this, let’s look at an example of a house. Let’s say you bought a house for USD 200,000 five years ago. Now, five years later, the house is worth USD 250,000. That means the house has appreciated by USD 50,000 over the course of those five years. This appreciation can be attributed to a variety of factors, such as inflation, increased demand for housing in the area, or a change in market conditions.

Why Appreciation Matters

Appreciation is an important concept for understanding the value of an asset over time. It is also a key factor in determining the return on an investment. For example, if you buy a house for USD 200,000 and it appreciates to USD 250,000 over the course of five years, then your return on investment is 25%. That means you have made a 25% return on your investment in the house.

Appreciation is also important for understanding the value of a currency. For example, if the value of the US dollar increases relative to other currencies, then it is said to have appreciated. This appreciation can have a significant impact on the economy, as it can make imports more expensive and exports more attractive.