Question

A large-abstract painting of a skull by Jean-Michael Basquiat was purchased by Yusaku Maezawa for $110.5 million in 2016. It has become one of the world's most expensive piece of arts sold at auction. The skull painting was created in 1982 and bought at auction by a private buyer in 1984, when Basquiat was still relatively unknown. That time the buyer paid just US$19,000. If the original buyer of 1984 had invested his $19,000 in another investment vehicle (such as stock), how much annual return would he need to have earned in order to accumulate the same wealth as he didfrom the painting investment? Assume for simplicity that the investment period is 32 years.

Answer 1

To calculate the annual return needed to accumulate the same wealth as the painting investment, we can use the formula for compound interest.

Step-by-step explanation:

To calculate the annual return needed to accumulate the same wealth as the painting investment, we can use the formula for compound interest:

Final Value = Principal x (1 + Annual Return)^(Number of Periods)

The initial investment of $19,000 grew to $110.5 million over a period of 32 years. The final value is $110.5 million, the principal is $19,000, and the number of periods is 32. Rearranging the formula, we can calculate the annual return:

Annual Return = (Final Value/Principal)^(1/Number of Periods) - 1

Plugging in the values, we get:

Annual Return = ($110,500,000/$19,000)^(1/32) - 1

Calculating this expression will give us the annual return needed to accumulate the same wealth as the painting investment.