Julian was given a gold coin originally purchased for $1 by his great-grandfather 50 years ago. Today the coin is worth $450. The rate of return realized on the sale of this coin is approximately equal to
A) 7.5%
B) 13%
C) 50%
D) cannot be determined with given information.

Question

Quizplus · Accepted Answer

To calculate the rate of return, we can use the following formula:

Rate of return = (selling price - purchase price) / purchase price

In this case, the purchase price was $1 and the selling price was $450. Therefore, the rate of return is:

Rate of return = (450 - 1) / 1 = 449

To express this as a percentage, we need to divide by the original purchase price and multiply by 100:

Rate of return = (449 / 1) * 100 = 44,900%

However, this rate of return is for a period of 50 years, so we need to calculate the annualized rate of return using the following formula:

Annualized rate of return = (1 + rate of return)^(1 / number of years) - 1

Plugging in the values, we get:

Annualized rate of return = (1 + 44,900%)^(1 / 50) - 1 = 13.2%

So the answer is B) 13%.

Julian Was Given a Gold Coin Originally Purchased for $1