Problem 4-14 Calculating Rates of Return [LO 3] In 2012, an Action Comics No. 1,

Question

Problem 4-14 Calculating Rates of Return [LO 3]

In 2012, an Action Comics No. 1, featuring the first appearance of Superman, was sold at auction for $1,050,000. The comic book was originally sold in 1939 for $.05.

For this to have been true, what was the annual increase in the value of the comic book? (Round your answer as directed, but do not use rounded numbers in intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Problem 4-21 Calculating Future Values [LO 1]

You have $7,800 to deposit. Regency Bank offers 6 percent per year compounded monthly (.50 percent per month), while King Bank offers 6 percent but will only compound annually.

How much will your investment be worth in 19 years at each bank? (Enter rounded answers as directed, but do not use rounded numbers in intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

Problem 4-24 Calculating Present Values [LO 2]

If you can earn .54 percent per month, how much will you have to deposit today? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

In 2012, an Action Comics No. 1, featuring the first appearance of Superman, was sold at auction for $1,050,000. The comic book was originally sold in 1939 for $.05.

Explanation / Answer

Future value = present value * (1 + interest rate per period)^number of periods

4.14)

number of periods = 2012 - 1939 = 73

1050000 = 0.05 * (1 + interest rate)^73

interest rate = 25.98%

so, the annual increase in the value of the comic book should be 25.98% value

4.21)

Investment value of regency bank after 19 years

= 7800 * (1 + 0.5%)^228 ( since compunded monthly, so number of periods = 19 * 12 = 228)

= $24,319.61

Investment value of king bank after 19 years

= 7800 * (1 + 6%)^19

= $23,599.68

4.24)

future value = 87000

number of periods = 12 * 12 = 144

interest per period = 0.54%

=>

87000 = Present valuee * ( 1 + 0.54%)^144

Present value = $40,060.87

so, $40,060.87 shold be deposited today

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