Problema Solution
Lance Murdock purchased a wooden statue of a Conquistador for $7,600 to put in his home office 7 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 n e-bay and only received $5,200 for it, and so he took a loss on the investment. What was his rate of return, that is, the value of i?
Answer provided by our tutors
P = $7,600 the principal
A = $5,200 the future value
n = 7 years
i = the rate of return per year
A = P(1 + i)^n
5200 = 7600(1 + i)^7
7600(1 + i)^7 = 5200
(1 + i)^7 = 52/76
i = - 0.053 or - 5.3%
click here to see the step by step solution of the equation
the rate of return is - 5.3%.