Lance Murdock purchased a wooden statue of a Conquistador for $ 7 comma 200 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 on e-Bay and only received $4 comma 700 for it, and so he took a loss on the investment. What was his rate of return, that is, the value of i ?

Question

Raiden Harrington

Business

4 December, 17:54

Lance Murdock purchased a wooden statue of a Conquistador for $ 7 comma 200 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 on e-Bay and only received $4 comma 700 for it, and so he took a loss on the investment. What was his rate of return, that is, the value of i ?

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Answers (1)

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Lorelai Colon · Answer 1

-5.91%

Explanation:

The rate of return can be determined using the future value formula as shown below:

FV=PV * (1+r) ^n

FV is the amount the wooden statue was sold for after it was purchased seven years which is $4700

PV is the original cost of the wooden statue

r is the unknown

n is the number of years which 7 years

4,700=7,200 * (1+r) ^7

divide both sides by 7,200

4700/7200 = (1+r) ^7

0.652777778 = (1+r) ^7

divide the index on both sides by 7

(0.652777778) ^ (1/7) = 1+r

0.940887955 = 1+r

r=0.940887955 - 1

r=-0.059112045 = -5.91%