Samantha has holdings of 260 troy ounces of platinum, currently valued at $ 810 dollars per ounce. She estimates that the price of platinum will rise to $ 850.50 per ounce in the next year. If the interest rate is 10 %, should she sell the platinum today?

Question

Business

Abbigail Howell

24 November, 23:33

Samantha has holdings of 260 troy ounces of platinum, currently valued at $ 810 dollars per ounce. She estimates that the price of platinum will rise to $ 850.50 per ounce in the next year. If the interest rate is 10 %, should she sell the platinum today?

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Answers (1)

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Donna Chambers · Answer 1

yes she should sell the platinum today

Explanation:

Yes she should sell now.

Given: the current price of platinum $810

Next year she estimates a price of $850.50

The interest rate is 10%

Therefore we need to calculate the interest rate that platinum can possibly grow by in order to compare it with the given interest rate.

We will use the formula Fv = Pv (1+i) ^n

Where Fv is the future value of platinum which is $850.5

Pv is the present value of platinum which is $810

N is the number of years that it takes to reach the price of $850.50 which is one year.

Then i is the interest rate that platinum can potentially grow in 1 year with to the price of $850.50.

Then we substitute the values on the above mentioned formula then solve for i

$850.50 = $ 810 (1+i) ^ 1 divide both sides by $810

$850.50/$810 = 1+i subtract both sides with 1

1.05 - 1 = i

0.05 = i

Therefore i is 5%.

So if i is less than the given interest rate then we can conclude that she will lose 1 year from now if she sells platinum in a years time from today at that price which is $850.50 because the platinum must increase for 10% interest and not 5% so that she can profit instead of losing that 5% in future or 1 years' time from now.