Calculating Rates of Return [LO3] The \"Brasher doubloon,\" which was featured i

Question

Calculating Rates of Return [LO3] 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. At what annual rate did the coin appreciate from its minting to the 1979 sale? What annual rate did the 1979 buyer earn on his purchase? At what annual rate did the coin appreciate from its minting to the 2014 sale? 15.

Explanation / Answer

Sold in 2014> $4,582,500

Face Value in 1787> $15

Sold in 1979> $430,000

The general formula to be used for a Present value and Future value question is

F.V.=P.V.*(1+r)^n

where F.V. is the future value

P.V is the present value

r is the rate of return

n is the number of periods

Solution to Q1.

No of years between 'year 1979' and 'minting year'= 1979-1787=192

F.V=PV*(1+r)^n

(430000/15)^(1/192)=1+r

solving for r: r=5.49%

Solution to Q2:

What annual rate did the 1979 buyer earn when he sold in 2014?

no of years in between the above 2 events: 2014-1979=35

again using the same formula as above:

(4582500/430000)=(1+r)^35

solving for r again: 6.99%

Solution to Q3:

what annual rate did the coin appreciate from minting to 2014 sale

no of years between the 2 events: 2014-1787=227

using the same formula

(4582500/15)=(1+r)^227

solving for r: r=5.721%

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

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