Question

Interest rate. In 1972, Bob purchased a new Datsun 240Z for $2,500. Datsun later changed its name to Nissan, and the 1972 Datsun 240Z became a classic. Bob kept his car in excellent condition and in 2002 could sell the car for seven times what he originally paid. What was Bob's annualized rate of return for the 30 years he owned this car? If he keeps the car for another thirty years and earns the same rate, what could he sell the car for in 2032?

Answer 1

The annualized return is calculated below:

Selling price = Purchase price x (1+i)"

2,500 x 7= 2,500 (1 + i)30

7= (1+i)30

70 = (1 + i)

1.06701355 – 1=i

0.06701355 = i

Annual rate of return is 6.701355%.

The selling price in 2032 is calculated below:

Selling price = 2,500 X (1+0.0670135560

Selling price = 2,500 x 49

Selling price = 122,500