Question

A 1987 advertisement in the New Yorker solicited offers on a 1967 Mercury Cougar XR7 (Motor Trend's 1967 car of the year) that had been stored undriven in a climate controlled environment for 20 years. If the original owner paid $4000 for this car in 1967, what price would he have to receive in 1987 to obtain a 10 percent annual return on his investment?

Answer 1

To obtain a 10% annual return on his investment, the original owner would have to receive $8,832 in 1987.

Step-by-step explanation:

To calculate the price that the original owner would have to receive in 1987 to obtain a 10 percent annual return on his investment, we can use the concept of compound interest. Since the car was purchased in 1967 and held for 20 years, we need to calculate the future value of the initial investment of $4000.

The formula for compound interest is:

FV = PV × (1 + r)^n

Where FV is the future value, PV is the present value (initial investment), r is the annual interest rate (10% in this case), and n is the number of years.

Using this formula, we can calculate:

FV = $4000 × (1 + 0.10)^20

= $4000 × 2.208

= $8,832

Therefore, the original owner would have to receive $8,832 in 1987 to obtain a 10 percent annual return on his investment.

Answer 2

You can put this solution on YOUR website!

A 1987 advertisement in the New Yorker solicited offers on a 1967 Mercury Cougar XR7 (Motor Trend's 1967 car of the year) that had been stored undriven in a climate controlled environment for 20 years.

If the original owner paid $4000 for this car in 1967, what price would he have to receive in 1987 to obtain a 10 percent annual return on his investment?

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If the 10% is compounded yearly the price is as followed.

A(10) = 4000(1+(0.10/1))^(10*1)

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A(10) = 4000(1.1)^10

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A(10) = $10,374.97

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Cheers,

Stan H.