XYZ can buy a Monet for $8,200,000 today. She believes that the masterpiece can be sold...

XYZ can buy a Monet for $8,200,000 today. She believes that the masterpiece can be sold in 7 years for $19,600,000. What is the annual rate of return that XYZ expects to earn on this art investment?

Expert Solution

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

19,600,000=8,200,000*(1+r/100)^7

(19,600,000/8,200,000)^(1/7)=(1+r/100)

(1+r/100)=1.1326

r=1.1326-1

=13.26%(approx)

jeff jeffy answered 2 years ago

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