Question

In 1626, John Mark, on behalf of Dutch West India Company, purchased the entire island of Manhattan for $24, which became known as New Amsterdam. Suppose that instead of this purchase, he invested $24 in a bank account.

(a) If the bank account offered 5% interest rate, what would have been the value of this account in 2020? in billion

(b) What would have been the value of this account in 2020 if the bank offered 6% interest rate? in billion

(c) What would have been the value of this account in 2020 if the bank offered 7% interest rate? in trillion

Answer 1

Year of Purchase = 1626

Today's Year = 2020

No. of Years Passed = 2020 - 1626 = 394 Years

Purchase Price = $24

(a) Value if 5% is interest paid by bank:

Value =

Value in 2020 = 24 * (1 + 5%)³⁹⁴

Value in 2020 = 5.36 * 10⁹

Value in 2020 would be 5.36 billion if that $24 had been invested in bank account with 5% as interest rate.

(b) Value if 6% is interest paid by bank:

Value =

Value in 2020 = 24 * (1 + 6%)³⁹⁴

Value in 2020 = 224.24 * 10⁹

Value in 2020 would be 224.24 billion if that $24 had been invested in bank account with 6% as interest rate.

(c) Value if 7% is interest paid by bank:

Value =

Value in 2020 = 24 * (1 + 7%)³⁹⁴

Value in 2020 = 9.066 * 10¹²

Value in 2020 would be 9.066 trillion if that $24 had been invested in bank account with 7% as interest rate.