In 1895, the first Putting Green Championship was held. The winner’s prize money
ID: 2728042 • Letter: I
Question
In 1895, the first Putting Green Championship was held. The winner’s prize money was $160. In 2010, the winner’s check was $1,360,000.
What was the percentage increase per year in the winner’s check over this period? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
If the winner’s prize increases at the same rate, what will it be in 2039? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
In 1895, the first Putting Green Championship was held. The winner’s prize money was $160. In 2010, the winner’s check was $1,360,000.
Explanation / Answer
Value of prize in 1895 = $160
Value of prize in 2010 = $1,360,000
Number of year = 115
a.
Let’s assume Rate of return = r
$1,360,000 = $160 × (1 + r) ^115
$1,360,000 / $160 = (1 + r) ^115
6,800 = (1 + r) ^115
(8,500)^ (1/115) = 1 + r
1 + r = 1.0819
r = 8.19%
Hence, Growth rate in prize is 8.19%.
b.
Value of prize in 2039
Number of year = 29 year
Growth rate = 8.19%
Value of prize in 2039 = $1,360,000 × (1 + 8.19%) ^ 29
= $1,360,000 × 9.7926
= $13,317,903.23
Hence, Value of prize in 2039 will be $13,317,903.23.