In 1895, the first Putting Green Championship was held. The winner’s prize money
ID: 2383220 • Letter: I
Question
In 1895, the first Putting Green Championship was held. The winner’s prize money was $200. In 2014, the winner’s check was $1,480,000.
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.)
If the winner’s prize increases at the same rate, what will it be in 2043? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)
In 1895, the first Putting Green Championship was held. The winner’s prize money was $200. In 2014, the winner’s check was $1,480,000.
Explanation / Answer
1. $1480000= ($200*(1 + r / 100)^119)
The number of years in the period = 2014-1895= 119 years;
Solve for "r" in the above compounding formula / equation using iteration function in an excel spreadsheet; it works out to approximately 7.78% per year increase rate .................... [ANSWER]
2. If the winner’s prize increases at the same rate, i.e. 7.78% per year of increase, then after coming 29 years i.e. in year 2043; the Winner's Prize works out to $12,997,772. ............... [ANSWER]
This is obtained by applying same compounding formula: Future Value= Present Value*((1+0.0778)^29)
Thus, FV= $1,480,000*((1+0.0778)^29);
Thus, after solving for this equation in excel spreadsheet, we get ANSWER of FV as $12,997,772 i.e. Value of Winner's Prize in year 2043.