Question

In 1895, the first a sporting event was held. The winner's prize money was $110. In 2007, the winner's check was $1,170,000. Assuming the same annual percentage increase will continue, what will the prize money be in 2040?

Answer 1

Number of years between 2007 and 1895, n = 112

FV = 1,170,000

PV = 110

FV = PV * (1 + r)^n

(1 + r)^n = FV/PV

(1 + r) = (FV/PV)^(1/n)

1 + r = (FV/PV)^(1/n) - 1

r = (FV/PV)^(1/n) - 1

r = (1,170,000/110)^(1/112) - 1

r = 0.08630933231

If we assume that the same annual percentage increase will continue, then the prize money in 2040 will be:

FV = PV * (1 + r)^n

Where,

PV = 1,170,000

r = 0.08630933231

n = 2040 - 2007 = 33

FV = 1,170,000 * (1 + 0.08630933231)^33

FV = $17,974,288.514154576

The prize money in 2040 will be $17,974,288.514154576

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