Lance Murdock purchased a wooden statue of a Conquistador for $7,500 to put in h

Question

Lance Murdock purchased a wooden statue of a Conquistador for $7,500 to put in his home office 8 years ago. Lance has recently married, and his home office is being converted into a sewing room. His new wife, who has far better taste than Lance, thinks the Conquistador is hideous and must go immediately. Lance decided to sell it on eBay and only received $4,600 for it, and so he took a loss on the investment. What was his rate of return, that is, the value of i? Please show work so that I understand how the calculations were done.

Explanation / Answer

solution

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$4600=$7500(1+i)8

0.61=(1+i)8

0.611/8=(1+i)

0.9407=1+i

i=-0.05928

rate of return i=-5.93%

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