Investor Rory pays slightly more than an apartment building is currently worth because she heard some intel that the university is opening a new campus a few blocks away. What principle of value is relevant to Rory's situation?

Rationale

Principle of anticipation is relevant to Rory's situation.

The principle of anticipation suggests that the value of a property can be influenced by expected future benefits, such as the anticipated increase in demand due to a new university campus nearby. Rory's decision to pay more than the current worth of the apartment building reflects her expectation of future appreciation in value based on this information.

A (principle of anticipation) CORRECT

This principle asserts that the present value of a property is largely determined by the future benefits it is expected to generate. In Rory's case, the news of a new university campus signifies potential increased demand for housing, leading her to perceive a greater value in the property than its current market price.

B (principle of substitution) YOUR ANSWER

The principle of substitution posits that a property's value is determined by the cost of acquiring a similar substitute property. In this scenario, Rory is not comparing the building's value to alternatives but rather considering future benefits that could enhance its worth, making this principle inapplicable.

C (principle of contribution) YOUR ANSWER

This principle deals with how much a particular improvement adds to the overall value of a property. However, Rory’s decision is based on anticipated future changes in the area rather than the contribution of specific features of the apartment building itself, rendering this choice irrelevant.

D (principle of regression) YOUR ANSWER

The principle of regression indicates that a property's value may decrease due to the presence of lower-valued properties nearby. Since Rory is motivated by future developments rather than current surroundings, this principle does not apply to her decision-making process.

Conclusion

Rory's investment decision is primarily influenced by the principle of anticipation, as she expects future benefits from the new university campus to enhance the property's value. Unlike the other principles, anticipation focuses on expected future demand, which justifies her willingness to pay above the current market price for the apartment building.

Investor Rory pays slightly more than an apartment building is currently worth because she heard some intel that the university is opening a new campus a few blocks away. What principle of value is relevant to Rory's situation?

Principle of anticipation is relevant to Rory's situation.

Related Questions

Related Quizzes

How familiar were you with this question?

Report an Issue

Rate this Practice Test