In 1895, the winner of a competition was paid $150. In 2006, the winner's prize was $70,000. What will the winner's prize be in 2040 if the prize continues increasing at the same rate?
$70,000 = $150 × (1 = r)111; r = 5.6927277 percent
FV = $70,000 × (1 + .056927277)34 = $459,866 |
59.
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Suppose that the first comic book of a classic series was sold in 1954. In 2000, the estimated price for this comic book in good condition was about $340,000. This represented a return of 27 percent per year. For this to be true, what was the original price of the comic book in 1954?
PV = $340,000 × [1/(1 + .27)46; PV = $5.71
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60.
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Suppose you are committed to owning a $140,000 Ferrari. You believe your mutual fund can achieve an annual rate of return of 8 percent and you want to buy the car in 7 years. How much must you invest today to fund this purchase assuming the price of the car remains constant?
PV = $140,000 × [1/(1 + .08)7; PV = $81,688.66
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