Lance Murdock purchased a wooden statue of a Conquistador for $7,500 to put in his home office 8 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 eBay and only received $4,600 for it, and so he took a loss on the investment. What was his rate of return, that is, the value of i? Please show work so that I understand how the calculations were done.

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valetta valetta · Answer 1 · 2020-01-11T09:26:27+01:00

Answer:

- 5.9%

Step-by-step explanation:

Data provided in the question :

Future value of the amount invested = $4,600

Principle i.e amount of purchase = $7,500

Time, n = 8 years

Now,

let the interest rate be 'i'

using compounding

$4,600 = $7,500 × (1 + i)⁸

or

0.613 = (1 + i)⁸

or

1 + i = 0.941

or

i = -0.059

or

interest rate = - 5.9%

Here negative sign means loss

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