In 1895, the first Putting Green Championship was held. The winner’s prize money was $140. In 2014, the winner’s check was $1,420,000.
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What was the percentage increase per year in the winner’s check over this period? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
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Increase per year | % |
If the winner’s prize increases at the same rate, what will it be in 2049? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)
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Winner's prize in 2049 | $ |
The time line is:
0 | 119 | |
–$140 | $1,420,000 |
To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is:
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FV = PV(1 + r)t |
Solving for r, we get: |
r = (FV / PV)1/t – 1 |
r = ($1,420,000 / $140)1/119 – 1 |
r = .0806, or 8.06% |
To find the FV of the first prize in 2049, we use: |
0 | 35 | |
–$1,420,000 | FV |
FV = PV(1 + r)t |
FV = $1,420,000(1.0806)35 |
FV = $21,407,738.35 |
Calculator Solution: |
Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calculation. |
Enter |
119
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±$140
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$1,420,000
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N
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I/Y
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PV
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PMT
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FV
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Solve for |
8.06%
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Enter |
35
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8.06%
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±$1,420,000
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N
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I/Y
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PV
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PMT
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FV
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Solve for |
$21,407,738.35
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Your second calculation is slightly off. It would be $21,407,307.95
ReplyDeleteHow would you do the second calculation?
DeleteHow would you do the second calculation?
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