Problem 4-15 Calculating Rates of Return [LO 3] Although appealing to more refin

Question

Problem 4-15 Calculating Rates of Return [LO 3] Although appealing to more refined tastes, art as a collectible has not always performed so profitably. Assume that in 2015, an auction house sold a statute at auction for a price of $10,605,500. Unfortunately for the previous owner, he had purchased it in 2009 at a price of $12,643,500. What was his annual rate of return on this sculpture? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Rate of return Hints References eBook&Resources

Explanation / Answer

Future Value = Present Value * ( 1+ Rate of Interest ) ^ Time

$ 10,605,500 = $ 12,643,500 * ( 1+Rate of Interest ) ^ 6

or[ ( $ 10,605,500 / $ 12,643,500 ) ^ ( 1/ 6 ) ] - 1 =Rate of Interest

or Rate of Interest = -2.89%

Hence the correct answer is -2.89%

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