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In 1904, the first Putting Green Championship was held. The winner's prize money was $130. In...

In 1904, the first Putting Green Championship was held. The winner's prize money was $130. In 2016, the winner's check was $1,167,000. (Do not round intermediate calculations.)

a. What was the percentage increase per year in the winner's check over this period?

b. If the winner's prize increases at the same rate, what will it be in 2049?

Solutions

Expert Solution

- Prize Money in 1904 = $130

Winner's check in 2016 = $1,167,000

No of years from 1904 to 2016 = 112 years

a).Calculating the Annualized percentage Increase in Price over 112 years:-

Annualized percentage Increase = (Current Prize Money/Past prize money)^(1/116=2) - 1

Annualized percentage Increase = ($1167,000/$130)^(1/112) - 1

Annualized percentage Increase = 1.084665 - 1

Annualized percentage Increase = 8.4665%

b). If the winner's prize increases at the same rate, Calculating the Prize money in 2049:-

Prize money in 2049 = Winner's check in 2016*(1+Annualized percentage Increase)^n

where, n= no of years = 2049 - 2016 = 33 years

Prize money in 2049 = $1167,000*(1+0.084665)^33

Prize money in 2049 = $1167,000*14.6135482008

Prize money in 2049 = $1,7054,010.75

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