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

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.

jeff jeffy answered 1 year ago

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