In 1895, the first Putting Green Championship was held. The winner’s prize money was $180. In 2010, the winner’s check was $1,380,000.

In 1895, the first Putting Green Championship was held. The winner’s prize money was $180. In 2010, the winner’s check was $1,380,000.

 

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))

Interest rate

%

If the winner’s prize increases at the same rate, what will it be in 2037? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Future value

$

Explanation:

We can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is:

   

FV = PV(1 + r)t

Solving for r, we get:

r = (FV / PV)1 / t – 1

r = ($1,380,000 / $180)1/115 – 1 = 0.0809, or 8.09%

To find the FV of the first prize in 2037, we use:

FV = PV(1 + r)t

FV = $1,380,000(1.0809)27 = $11,269,824.51

Calculator Solution:

Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calculation.

Enter

115

±$180

$1,380,000

N

I/Y

PV

PMT

FV

Solve for

8.09%

Enter

27

8.09%

$1,380,000

N

I/Y

PV

PMT

FV

Solve for

$11,269,824.51