Question
Marylouise Salas bought a Federal period chest from an antique store in 1975 for $800. In 2005, Leigh Keno appraised it at $8,000. Calculate Marylouises
Marylouise Salas bought a Federal period chest from an antique store in 1975 for $800. In 2005, Leigh Keno appraised it at $8,000. Calculate Marylouises rate of return, assuming she sold the chest in 2005 for the appraisal value.
b. Bud Simonson bought an original 1931 Frankenstein movie poster at a garage sale in 1991 for $50. In 2015, Craig Flinner appraised the poster at $1,500. Calculate Buds rate of return, assuming he sold the poster in 2015 for the appraised value.
c. In case a) above, $800 in 1975 had the same inflation-adjusted buying power as $2,900 in 2005, according to the BLS Inflation Calculator: http://www.bls.gov/data/inflation_calculator.htm
Recalculate Ms. Salas rate of return using the real (inflation-adjusted) initial value.
d. In case b) above, $50 in 1991 had the same inflation-adjusted buying power as $87 in 2015, according to the Inflation Calculator. Recalculate Mr. Simonsons rate of return using the real (inflation-adjusted) initial value.
e. If our benchmark rate of return for long-term investments is the 7% real average broad stock-market return, who earned an economic profit from the antique investment? Did anyone earn an accounting loss? An economic loss?
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