Business Math 4
one day, a man looking something like a famous entertainer from the 1970s, enters the 7th inning’s memorabilia department and begins examining the items in the showroom. charlie, intrigued by the stranger’s appearance, greets him and asks him if he is interested in anything in particular. the stranger is particularly interested in elvis memorabilia. now, charlie is a lifelong fan of elvis, and has actually met and talked with elvis on many occasions. he enjoys collecting, displaying, and talking about elvis merchandise with other fans and collectors. it is amazing, but elvis gear does appreciate at a pretty consistent rate, and the supply of items is limited enough to withstand the ups and downs of the economy. there always seems to be enough money in the hands of collectors to continue to bid up items from year to year, especially any item that had a personal association with elvis, like his clothes, jewelry, or other personal possessions. the stranger wants to know what he can expect in terms of a return on his investment, should he buy several of the items in the shop.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
what you know:
elvis memorabilia has increased by 10–30% each year on average in the past. charlie thinks that the items will continue to increase at the following rates:
item |
current value |
expected increase |
key to graceland and picture |
$750 |
10 – 15% increase |
christmas cd |
$150 |
10% |
tcb necklace |
$10,000 |
30% |
mint-condition 1st album |
$12,000 |
20% |
signed 45 rpm records |
$750 |
10% |
signed poster |
$3,500 |
15% |
what you are looking for:
1. how much will items appreciate over time?
2. what factors affect appreciation?
3. is investing in elvis memorabilia a good investment?
solution plan:
1. if you were to place $15,000 in the bank at 3% interest, how much would you have in the bank after one year if the interest were compounded quarterly?
2. if you were to buy $15,000 of elvis memorabilia and it appreciated by 20% per year, how much would the memorabilia be worth at the end of one year?
3. which investment carries a higher risk of losing money? what factors could cause the value of elvis memorabilia to depreciate instead of appreciate?
4. if the key to graceland costs $750 today and appreciates in value by 15% in one year, what will it be worth one year from today?
5. how much would the same key be worth after 5 years if the appreciation rate averages 15%? assume that the appreciation would be compounded annually and use the future value formula for simple interest.
6. what would the christmas cd be worth in one year based if its current value is $150 and it appreciates at 10% over the year?
7. what would the value of the same cd be after 7 years if the average annual appreciation rate is 10%?
8. how much has the original elvis album appreciated based upon its original value of $5 and its current value of $12,000?
9. if the signed 45s are currently worth $750 and they actually increase at a faster rate of 12½%, how much will one record be worth next year?
10. charlie originally wanted $15,500 for the album, movie poster, and a 45 record. he agreed to sell them for $14,500. why would he agree to lower his price by $1,000?
11. if the price paid for the three items increases in value at an overall rate of 18% next year, what will this investment be worth next year?
do you think that investing in elvis is a good investment? why or why not?