Question
In: Finance
Julian was given a gold coin originally purchased for $1 by his great-grandfather 50 years ago....
Julian was given a gold coin originally purchased for $1 by his great-grandfather 50 years ago. Today the coin is worth $450. The rate of return realized on the sale of this coin is approximately equal to
Solutions
Expert Solution
| Solution: | ||
| The rate of return realized on the sale of this coin is approximately equal to 13% | ||
| Working Notes: | ||
| present value = PV = $1 deposited 50 years ago | ||
| rate = i = ?? =rate of return realized on the sale | ||
| Period=n = nper = 50 is no of years | ||
| FV= Future value at end of 50 years =$450 value after 50 years | ||
| Future value FV =PV x (1+i)^n | ||
| 450 =1 x (1+ i)^50 | ||
| i= 450^(1/50) - 1 | ||
| i= 0.129963071 | ||
| i= 0.1300 | ||
| i= 13.00% | ||
| By Excel method | ||
| present value = PV = -$1 deposited 50 years ago as it was cash outflow | ||
| rate = i = ?? | ||
| Period=n = nper = 50 is no of years | ||
| PMT = $0 the annual deposit which is not done so ZERO | ||
| FV= Future value at end of 50 years =$450 value after 50 years | ||
| EXCEL | ||
| =RATE(nper,pmt,pv,fv) | ||
| =RATE(50,0,-1,450) | ||
| 0.129963071 | ||
| 13.00% | ||
| Please feel free to ask if anything about above solution in comment section of the question. | ||
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