Question

In 1880 five aboriginal trackers were each promised the equivalent of 100 Australian dollars for helping to capture the notorious outlaw Ned Kelley. In 2002 the granddaughters of two of the trackers claimed that this reward had not been paid. The Victorian prime minister stated that if this was true, the government would be happy to pay the $100. However, the granddaughters also claimed that they were entitled to compound interest.
Required:
a. How much was each granddaughter entitled to if the interest rate was 4%?
b. How much was each entitled to if the interest rate was 8%?

Answer 1

Answer:

A. $11,969.3

B. $1,195,909.1

Explanation:

a. Calculation for How much was each granddaughter entitled to if the interest rate was 4%

First step is to calculate the Time period

Time period=2002-1880

Time period=122 years

Now let calculate the Future value using this formula

Future value=PV(1+r)^122 years

Let plug in the formula

Future value=$100(1+0.04)^122 years

Future value=$100(1.04)^122 years

Future value=$11,969.3

Therefore How much was each granddaughter entitled to if the interest rate was 4% will be $11,969.3

b. Calculation for How much was each entitled to if the interest rate was 8%

First step is to calculate the Time period

Time period=2002-1880

Time period=122 years

Now let calculate the Future value using this formula

Future value=PV(1+r)^122 years

Let plug in the formula

Future value=$100(1+0.08)^122 years

Future value=$100(1.08)^122 years

Future value=$1,195,909.1

Therefore How much was each entitled to if the interest rate was 8% will be $1,195,909.1