Answer:
1. The percentage increase per year in the winner’s check over the period: 8.07%.
2. If the winner’s prize increases at the same rate, the prize will be $11,593,008.13 in 2040.
Explanation:
1.
We use the formula for Compound Annual Growth Rate (CAGR) to sovle the problem:
From 1895 to 2016, there are: 2016 - 1895 = 121 compounding periods;
Thus, the CAGR over the period is calculated as: (1,800,000/150)^(1/121) - 1 = 8.07%.
2.
From 2016 to 2040, there are: 2040 - 2016 = 24 compounding periods.
Thus, the winner’s prize in 2040 given the same rate of increasing will be:
1,800,000 * (1+8.07%)^24 = $11,593,008.13.