Question

In 1895, the winner of a competition was paid $110. In 2006, the winner's prize was $70,000. What will the winner's prize be in 2040 if the prize continues increasing at the same rate?

Answer 1

Winner’s prize will be in 2040 = $505697.33 OR $505697

Explanation;

First of all let’s calculate interest rate;

Amount paid in 1895 = $110

Value of prize in 2006 = $70000

n = 111 years

Thus interest rate will be calculated as follow;

$70000 = $110 (1 + r) ^ 111

r = 5.988466

Now, let’s calculate value of prize in 2040;

Number of years (2040 – 2006) = 34 years

r = 5.988466

Thus value in 2040 will be calculated as follow;

$70000 (1 + 0.05988466)^34

$70000 (1.05988466)^34

= $505697.33 (Approx.)