Question

4. According to WSJ, friends and relatives of young Warren Buffet regularly heard him complaining that he did not want to spend $300,000 for his haircut. Back in the day, a haircut would cost Mr Buffet around $0.5. For how long do you need to compound the haircut price to justify Mr Buffet’s complaints? Give answers assuming that interest rate is 1%, 5%, and 10%. What if you use simple interest rate?

Answer 1

If interest rate is 1%, number of times compounded= 1337.11

If interest rate is 5%, number of times compounded= 272.69

If interest rate is 10%, number of times compounded= 139.59

If simple interest is used,

If interest rate is 1%, number of years required= 29,999,950

If interest rate is 5%, number of years required= 5,999,990

If interest rate is 10%, number of years required= 2,999,995

Calculation as below: