Question

Although appealing to more refined tastes, art as a collectible has not always performed so profitably. In 2010, an auction house sold a painting at auction for a price of $1,130,000. Unfortunately for the previous owner, he had purchased it three years earlier at a price of $1,710,000. What was his annual rate of return on this painting

Answer 1

Answer:

rate of interest  = -12.90%

Explanation:

The computation of the annual rate of return is shown below:

As we know that

Future value = Present value * (1 + interest rate)^number of years

$1,130,000 = $1,710,000 × (1 + interest rate)^3

0.660819 = (1 + interest rate)^3

0.8710 = 1 + interest rate

So, the rate of interest is

rate of interest  = -0.128981

rate of interest  = -12.90%