Question

In 1626, Dutchman Peter Minuit purchased Manhattan Island from a local Native American tribe. Historians estimate that the price he paid for the island was about $24 worth of goods, including beads, trinkets, cloth, kettles, and axe heads. Many people find it laughable that Manhattan Island would be sold for $24, but you need to consider the future value (FV) of that price in more current times. If the $24 purchase price could have been invested at a 4.00% annual interest rate, what is its value as of 2017 (391 years later)? $93,253,648.69 $109,710,174.93 $126,166,701.17 $144,817,430.91

Answer 1

Answer: Option (b) is correct.

Explanation:

Given that,

Price of island = $24 worth of goods

Goods include beads, trinkets, cloth, kettles, and axe heads.

Annual interest rate(r) = 4%

Number of periods(n) = 391

Future value will be calculated from the following formula:

$= Present\ value\times(1+r)^{n}$

$= 24\times(1+0.04)^{391}$

$= 24\times(1.04)^{391}$

      = 24 × 4,571,257.29

      = $109,710,174.93