Although appealing to more refined tastes, art as a collectible has not always p

Question

Although appealing to more refined tastes, art as a collectible has not always performed so profitably. During 2003, an auction house sold a sculpture at auction for a price of $10,271,500. Unfortunately for the previous owner, he had purchased it in 2000 at a price of $12,297,500. What was his annual rate of return on this sculpture? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Annual Rate of Return:______%

Explanation / Answer

We can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is:

FV = PV(1 + r) t Solving for r, we get: r = (FV / PV) 1 / t – 1 r

= ($10,271,500 / $12,297,500) 1/3 – 1 = – 5.82%

Notice that the interest rate is negative. This occurs when the FV is less than the PV

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.