A coin collection is purchased for $1,000. Twenty years later, the owner is told that the collection is worth quite a bit of money! If the rate of return on the stamp collection is 4% per year, what is the current value of the stamp collection? In your final answer, include all of your calculations.
To calculate the current value of the stamp collection, we can use the concept of compound interest. Compound interest is calculated using the formula:
A = P(1 + r/n)^(nt)
Where:
A = the final amount (current value)
P = the principal amount (initial investment)
r = rate of interest per compounding period (in decimal form)
n = number of compounding periods per year
t = number of years
In this case, the principal amount (P) is $1,000, the rate of interest (r) is 4% or 0.04, there are 1 compounding period per year (n = 1), and the stamp collection has been held for 20 years (t = 20).
Using these values in the formula, we can calculate the current value (A) of the stamp collection:
A = $1,000(1 + 0.04/1)^(1*20)
You can calculate this expression using a calculator or a spreadsheet to get the final answer.
A ≈ $1,900.42
Therefore, the current value of the stamp collection is approximately $1,900.42.
coin?...stamp?
1,000 * (1 + .04)^20