In 1905 the first US Open Golf Championship was held The win

In 1905, the first U.S. Open Golf Championship was held. The winner’s prize money was $250. In 2012, the winner’s check was $1,450,000.

What was the annual percentage increase in the winner’s check over this period? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

If the winner’s prize increases at the same rate, what will it be in 2035? (Enter your answer in dollars, not millions of dollars (e.g., 1,234,567). Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Solution

This is a FV caclulation question.

Value in 1905(PV1) = $250

Value in 2012(PV2) = $1450000

Number of years = 107

PV2=PV1(1+r)ⁿ

Putting n=107, PV1=250, PV2=1450000,

We get r=0.08435(=8.435%)

Therefore, the prize money has been increasing at 8.44% annually.

If the prize money increases at the same rate,

FV = PV2(1+r)ⁿ = 1450000(1+0.08435)²³= $9,339,618.994

Therefore, the prize money = $9,339,618.99