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 5% annual interest rate, what is its value as of 2012 (386 years later) ?

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Business

Leia Larsen

1 April, 11:17

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 5% annual interest rate, what is its value as of 2012 (386 years later) ?

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Mateo Lopez · Answer 1

The value of the island as of 2012=$3,624,771,902

Explanation:

To determine the future value of the 1626 investment, use the expression below;

F. V=P. V (1+r) ^n

where;

F. V=future value of investments

P. V=present value of the investment

r=annual interest rate

n=number of years

In our case;

F. V=unknown

P. V=$24

r=5%=5/100=0.05

n=386 years

Replacing;

F. V=24 (1+0.05) ^386

F. V=24 (1.05) ^386

F. V=$3,624,771,902

The value of the island as of 2012=$3,624,771,902