In 1995 an anonymous Private collector Purchased a painting by Picasso entitled

Question

In 1995 an anonymous Private collector Purchased a painting by Picasso entitled Angel Fernandez de Sonto for $ 29,152,000. The picture depicts Picasso's friend de Soto seated in a Barcelona cafe drinking absinthe. The Painting was done in 1903 and was valued then at $600. If The painting was owned by The same family until its sale in 1995, what rate of return did they receive on The $600 investment? In 1990 Mrs.John Hay Whitney Sold her painting by Renoir, Au Moulin de la Galette, depicting an open-air Parisian dance hall, for $71 million. The buyer also had to pay The auction house commission of 10%, or a total of $78.1millon. The Whitner family had purchased The painting in 1929 for $ 165.000. What rate of return did Mrs. Whitney receive on The investment? Was The rate of return really as high as you computed in (a)? Explain. The local bank pays 4% interest on savings deposits. In a nearby town, The bank pays 1% per quarter. A man who had $3000 to deposit wonders whether The higher in

Explanation / Answer

The future Worth

                       $71 million = $165,000*(FV,i,61)

(FV,i,61) = $71 million/$165,000                 Simple algebra

From tables we can see that

(PA,i5,61)

I

1034.5

12%

341.7

10%

By interpolating linealy

I=10%+(2%)((430.3-341.7)/(1034.5-341.7))

=10.35

(b) The CPI in 1929 was 17 as compared to 126 in 1990

So 165000 in 1929 will be equal to 165000*126/17= $1223000 in 1990

The rate of return would be around 6.8-6.9%

(PA,i5,61)

I

1034.5

12%

341.7

10%

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