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Edit View History Bookmarks People Window Help C Secure https://newconnect.mheducation.com/flow/connect.html Help Save Quiz two - Chapter 5 The "Brasher doubloon," which was featured in the plot of the Raymond Chandler novel, The High Window, was sold at auction in 2014 for $4,582,500. The coin had a face value of $15 when it was first issued in 1787 and had been previously sold for $430,000 in 1979. a. At what annual rate of return did the coin appreciate from its minting to the 1979 00:18-58 sale? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What annual rate of return did the 1979 buyer earn on his purchase? (Do not round intermediate calculations and enter your answer as a percent rounded rounded to 2 decimal places, e.g., 32.16) c. At what annual rate of return did the coin appreciate from its minting to the 2014 sale? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Rate of retun C. Rate of return

Explanation / Answer

This question requires application of time value of money basic function, which is FV = PV * (1 + r)n

a) We need to calculate the rate of return between 1787 and 1979.

N = 1979 - 1787 = 192

FV = $430,000,

PV = $15

Applying the function,

430,000 = 15 * (1 + r)192

$28,666.67 = (1 + r)192

Taking 192nd root of both sides of equation

1.05491 = 1 + r

r = 5.49%

b) We need to calculate the rate of return between 1979 and 2014.

N = 2104 - 1979 = 35

PV = $430,000,

FV = $4,582,500

Applying the function,

4,582,500 = 430,000 * (1 + r)35

10.6570 = (1 + r)35

Taking 35th root of both sides of equation

1.0699 = 1 + r

r = 6.99%

c) We need to calculate the rate of return between 1787 and 2014.

N = 2014 - 1787 = 227

FV = $4,582,500,

PV = $15

Applying the function,

4,582,500 = 15 * (1 + r)227

305,500 = (1 + r)227

Taking 227th root of both sides of equation

1.0572 = 1 + r

r = 5.72%

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