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Book value is the price paid for an asset. It never changes as long as the asset is owned. Market value is the current price at which the asset can sell.

For example, a home bought 10 years ago for $300,000 will retain that $300,000 book value for as long as the investor owns it. If the house will sell today for $500,000, that’s its market value.

Book values are useful for tracking profits and losses. The difference between an investment’s book and market values reveals the profit or loss incurred.

Generally accepted accounting principles require a company’s balance sheet to list hard assets, such as buildings and equipment, according to their book values. This rule can be problematic if a company’s assets have greatly appreciated, since the assets cannot be re-priced and added to the company’s overall value.

For more information, see What's the Difference Between Book and Market Value?

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