Question

Many people have said that buying and selling vintage cars can be very profitable. As a result, you have decided to evalauate whether this is true. During 2003, a car auction house sold a vintage Spyder race car for a price of $10,331,500. The previous owner of the same car, had purchased it in 2000 from a dealer at a price of $12,417,500.

Estimate the annual rate of return for the owner of the vintage Spyder race car? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

We use the formula:  
A=P(1+r/100)^n
where   
A=future value
P=present value  
r=rate of interest
n=time period.

10,331,500=12,417,500*(1+r/100)^3

(10,331,500/12,417,500)^(1/3)=(1+r/100)

(1+r/100)=0.940538123

r=0.940538123-1

=-5.95%(Approx)(Negative)