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, a sculpture was sold at auction for a price of $10,305,500. Unfortunately for the previous owner, he had purchased it in 1999 at a price of $12,376,500. What was his annual rate of return on this sculpture?

rev: 09_17_2012

-3.80%

-4.03%

-5.06%

-4.47%

4.68%

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Although appealing to more refined tastes, art as a collectible has not always performed so profitably. During 2003, a sculpture was sold at auction for a price of $10,305,500. Unfortunately for the previous owner, he had purchased it in 1999 at a price of $12,376,500. What was his annual rate of return on this sculpture?

Explanation / Answer

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period

10,305,500=12,376,500(1+r/100)^4

(10,305,500/12,376,500)^(1/4)=(1+r/100)

(1+r/100)=0.95525

r=(0.95525-1)*100

=-4.47%(Approx)(Negative).

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